Question

Table 2: Prices of different assets under different economic conditions Stock Y Probability Economic condition Recession Expansion Stock X 0.07 0.63 0.2 0.8 0.15 Using the population distribution of Asset X and Asset Y from Table 2, consider the portfolio of Mr.Wong is W-3000+6000X and that of Mr. Vinh is V 2000-1000Y (a) Compute E[W] and E V]. (2 points) (b) Compute and σ (2 points) (c) Compute com(W.V). (2 points)

Answer 1

Therefore sigma v^2 = E (v^2) - [E (v)]^2 = sigma 390500 - (2518)^2 Therefore sigma v^2 = 50176 (c) = > Now we have to find corr (w, v) Corr (w, v) = Cov (w, v)/ squareroot sigma w^2 sigma v^2 i.e, Corr (w, v) = Cov (w, v)/ sigma w sigma v Here to find Cov (w, v) we need to have joint mass function, which is missing. Hence we cannot find corr (w, v)