The table below shows the probability of three economic scenarios and the corresponding percent return for...

The table below shows the probability of three economic scenarios and the corresponding percent return for stock X and stock Y (note that f(x) = f(y) =f(x+y)=f(x,y)

Economy	Probability f(x,y)	Return On X	Return On Y
recession	.20	-15	7
stable	.55	8	3
Strong	.25	20	1

You are given the expected value E(x) = 6.4, the variance Var(x) = 139.24, and

E(y) = 3.3, Var(y) = 4.11

a) Find the expected value E(x+y)

b) Find the variance Var(x+y)

c) Compute the covariance of x and y.

d) Compute and interpret sign and the size of the sample correlation coefficient.

Solutions

Expert Solution

orchestra answered 1 year ago

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