Question

Question 2 (1 point)

Given the returns and probabilities for the three possible states listed here, calculate the covariance between the returns of Stock A and Stock B. For convenience, assume that the expected returns of Stock A and Stock B are 0.10 and 0.17, respectively. (Round your answer to 4 decimal places. For example .1244)

	Probability	Return(A)	Return(B)
Good	0.35	0.30	0.50
OK	0.50	0.10	0.10
Poor	0.15	-0.25	-0.30

Your Answer:

Question 2 options:

Answer

Question 3 (1 point)

In order to fund her retirement, Michele requires a portfolio with an expected return of 0.11 per year over the next 30 years. She has decided to invest in Stocks 1, 2, and 3, with 25 percent in Stock 1, 50 percent in Stock 2, and 25 percent in Stock 3. If Stocks 1 and 2 have expected returns of 0.11 and 0.11 per year, respectively, then what is the minimum expected annual return for Stock 3 that will enable Michele to achieve her investment requirement? Round to two decimal places.

Your Answer:

Question 3 options:

Answer

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.