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Consider the following table: Stock Fund Bond Fund Scenario Probability Rate of Return Rate of Return...

Consider the following table:

Stock Fund Bond Fund
Scenario Probability Rate of Return Rate of Return
Severe recession 0.05 −46% −16%
Mild recession 0.20 −22.0% 11%
Normal growth 0.30 5% 2%
Boom 0.45 42% 5%


a. Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 4 decimal places.)




b. Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 4 decimal places.)

Solutions

Expert Solution

1.
Mean return=13.700%

2.
Variance=0.08162100

3.
Covariance=0.002767500

jeff jeffy answered 2 years ago
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