Use the following information for the problem. ____________________________________________________ State of Probability of Returns if State Occurs Economy State of Economy Stock S ...

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Finance

Use the following information for theproblem.

              State of        Probabilityof             Returns if State Occurs
              Economy      State ofEconomy       StockS          Stock T

              Boom          0.10                          12%                4%
              Normal        0.65                        9%                  6%
              Recession     0.25                        2%                  9%

      a)   Find the expectedreturn of each stock.
Use at least seven decimal places incomputations of (b), (c) and (d) below to avoid significantrounding errors.
      b)Calculate the variance and standard deviation of returns of eachstock.
     c)   Compute the covariance and correlation of returnsbetween the two stocks.
     d)   Assume that you invest $4,500 in Stock S and $3,000in Stock T. Find the expected return on the portfolio and thestandard deviation of the portfolio’s return.

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3.5 Ratings (501 Votes)

STOCK S P R1 APR1 B1R1755 CB12 DCP State of Economy Probability Return Probabilityreturn Deviation from mean Deviation squared Deviation SquaredProbability Boom 01 12 12 445 1980 198025 Normal 065 9 585 145 210 136663 Recession 025 2 05 555 3080 770063 Total 755 Total 1104750 Expected Mean Return of StockS 755 Variance of return of stock S 1104750 See Answer

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Use the following information for theproblem. ____________________________________________________ State of Probabilityof Returns if State Occurs Economy State ofEconomy StockS Stock T____________________________________________________ Boom 0.10 12% 4% Normal 0.65 9% 6% Recession 0.25 2% 9% ____________________________________________________ a) Find the expectedreturn of each stock.Use at least seven decimal places incomputations of (b), (c) and (d) below to avoid significantrounding errors. b)Calculate the variance and standard deviation of returns of eachstock. c) Compute the covariance and correlation of returnsbetween the two stocks. d) Assume that you invest $4,500 in Stock S and $3,000in Stock T. Find the expected return on the portfolio and thestandard deviation of the portfolio’s return.