HAND CALCULATIONS ONLY. NO EXCEL. You forecast there are three potential scenarios for the economy: a...

HAND CALCULATIONS ONLY. NO EXCEL.

You forecast there are three potential scenarios for the economy: a bull, flat, and bear market. You also estimate the returns for a stock and bond mutual fund as follows:

Economic Scenario	Stock Fund	Bond Fund	Probability of Scenario
Recession	-18%	6%	0.3
Flat	8%	4%	0.45
Boom	20%	-8%	0.25

Using this information, you find for the stock fund: E(r_S)=0.032 and σ_S=0.1469, and for the bond fund: E(r_B)=0.016 and σ_B=0.0561.

Compute the covariance between the stock and bond fund. (Record your answer to at least four decimal places) (10 points)

Compute the correlation coefficient between the stock and bond fund. (Record your answer to at least four decimal places) (10 points)

You put 70% of your portfolio in the stock fund and the remaining 30% in the bond fund.

Compute the standard deviation of your portfolio. (Record your answer to at least four decimal places) (10 points)

Expert Solution

JUST WRITTEN IN EXCEL, OTHERWISE ALL PURE SIMPLE CALCULATIONS. NO EXCEL FUNCTION IS USED. THANK YOU

jeff jeffy answered 2 years ago

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