Suppose that the returns on the stock fund presented in Spreadsheet 6.1 were –40%, –14%,...

Suppose that the returns on the stock fund presented in Spreadsheet 6.1 were –40%, –14%, 17%, and +33% in the four scenarios.

a. Would you expect the mean return and variance of the stock fund to be more than, less than, or equal to the values computed in Spreadsheet 6.2? Why?

b. Calculate the new values of mean return and variance for the stock fund using a format similar to Spreadsheet 6.2. Confirm your intuition from part (a).

c. Calculate the new value of the covariance between the stock and bond funds using a format similar to Spreadsheet 6.4. Explain intuitively the change in the covariance.