Question

In: Finance

Consider the following table, and two risky assets A and B State of the economy Probability...

  1. Consider the following table, and two risky assets A and B

State of the economy

Probability

Stock A

rate of return

Stock B

rate of return

Moderate recession

0.05

-0.02

-0.20

Slight recession

0.15

-0.01

-0.10

2% growth

0.65

0.15

0.15

3% growth

0.15

0.16

0.30
  1. What is the correlation coefficient of Stock A and Stock B?
  2. Consider a portfolio made of 40% Stock A and 60% Stock B.  
    1. What is the expected return of this portfolio?
    2. What is the standard deviation of this portfolio?

Solutions

Expert Solution

CORRELATION COEFFICIENT ROUNDED TO 4 DECIMALS. PORTFOLIO RETURN AND RISK ARE ROUNDED TO 2 DECIMALS. ALL RETURNS AND STANDARD DEVIATIONS ARE IN %.

jeff jeffy answered 2 years ago
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