Question

Consider the following table: Stock Fund Bond Fund Scenario Probability Rate of Return Rate of Return Severe recession 0.05 –40 % –9 % Mild recession 0.25 –14 % 15 % Normal growth 0.40 17 % 8 % Boom 0.30 33 % –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 2 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 2 decimal places.)

the answer please

Answer 1

						EXP MEANS EXPECTED
PARTICULARS		STOCK FUND	BOND FUND	P*RS	P*RB	RS-EXPRS	RB-EXPRB	P*(RS-EXPRS)	P*(RB-EXPRB)	CO VARIANCE
		RS	RB					ALLSQURE	ALLSQURE	STOCK & BOND
										P*(RS-EXPRS)*(RB-EXPRB)
Severe recession	0.05	40	9	2.00	0.45	17.80	0.10	15.84	0.0005	0.09
Mild recession	0.25	14	15	3.50	3.75	-8.20	6.10	16.81	9.3025	-12.51
Normal growth	0.4	17	8	6.80	3.20	-5.20	-0.90	10.82	0.324	1.87
Boom	0.3	33	5	9.90	1.50	10.80	-3.90	34.99	4.563	-12.64
	1			22.20	8.90			78.46	14.19	-23.18
EXPECTED RETURN STOCK				22.20%
VARIANCE OF STOCK				78.46%
STANDARD DEVIATION STOCK-ROOT OF			78.46	8.86%
EXPECTED RETURN BOND				8.90%
VARIANCE OF BOND				14.19%
STANDARD DEVIATION BOND-ROOT OF			14.19	3.77%
Covariance between the stock and bond funds	-23.18
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