Question

Check my work Consider the following table: Scenario Severe recession Mild recession Normal growth Boom Stock Fund Bond Fund Probability Rate of Return Rate of Return 0.05 -27% -12% 0.25 -7% 18% 0.40 12% 11% 0.30 17% -8% a.Calculate the values of mean return and variance for the stock fund, (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 2 decimal places.) Mean return Variance

Please help me. Thank you.

Answer 1

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

B C D E F. Probability Scenario Severe recession Mild recession Normal growth Boom 0.05 0.25 0.40 0.30 Stock Fund -27% -7% 12% 17% Bond Fund -12% 18% 11% -8% Mean return of Stock Fund Variance of Stock Fund 6.8% 1.47% 11 b. Mean return of Bond Fund Covariance (Stock,Bond) 5.9% -0.0043 12

Cell reference -

121 B D E Probability Stock Fund Bond Fund Scenario Severe recession Mild recession Normal growth Boom 0.05 0.25 0.4 0.3 -0.27 -0.07 0.12 0.17 -0.12 0.18 0.11 -0.08 8 a. Mean return of Stock Fund Variance of Stock Fund =SUMPRODUCT(C3:C6,D3:06) =SUMPRODUCT((08-D3:D6)^2,C3:06) 11 b. Mean return of Bond Fund Covariance (Stock,Bond) =SUMPRODUCT(C3:C6,E3:56) =SUMPRODUCT((C8-D3:06),(C11-E3:E6),C3:06)

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