Question

You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a​ $1,000 investment in each stock under four different economic conditions has the probability distribution shown to the right. Complete parts​ (a) through​ (d).

		Returns
Probability	Economic Condition	Stock X (in $’s)	Stock Y (in $’s)
0.4	Recession	- 55	-80
0.1	Slow growth	30	50
0.2	Moderate growth	110	130
0.3	Fast growth	160	200

Note: Include Excel formulas.

(a)    Compute the expected return for stock X and for stock Y.

(b)   Compute the standard deviation for stock X and for stock Y.

(c)    If the correlation between X and Y is 0.98,compute the mean and the standard deviation of a simple portfolio with 50% of the initial investment in Stock X and 50% of the initial investment in Stock Y.

Answer 1

6,4 / -55 / -30 -21 O.1 0.2 32 1210 66 IL 7 : 93.8o 121.2

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