Below are data on economic condition, probability, and expected return on stock and bond funds in a year.ScenarioProbabilityStock Fund (%)Bond Fund (%)Severe recession0.05-37-10Mild recession0.25-1110Normal growth0.40147Boom0.30302Calculate expected return and standard deviation of each fund.Calculate covariance and correlation coefficient between stock fund and bond fund.Your portfolio is composed of 85% in bond fund and 15% in stock fund. Using Excel, calculate expected return and standard deviation of your portfolio based on Equations in the attached images.Discuss important implications with respect to portfolio theory as you evaluate all numbers in part a, b, and c above. E (rp) = WBE (rB)+WsE (rs) of = (WBOB) + (Ws0s)² + 2 (WBOB) (wsos)PBS

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Description: Below are data on economic condition, probability, and expected return on stock and bond funds in a year.ScenarioProbabilityStock Fund (%)Bond Fund (%)Severe recession0.05-37-10Mild recession0.25-1110Normal growth0.40147Boom0.30302Calculate expected

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Answered: Below are data on economic condition,…

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Below are data on economic condition, probability, and expected return on stock and bond funds in a year.

Scenario	Probability	Stock Fund (%)	Bond Fund (%)
Severe recession	0.05	-37	-10
Mild recession	0.25	-11	10
Normal growth	0.40	14	7
Boom	0.30	30	2

Calculate expected return and standard deviation of each fund.
Calculate covariance and correlation coefficient between stock fund and bond fund.
Your portfolio is composed of 85% in bond fund and 15% in stock fund. Using Excel, calculate expected return and standard deviation of your portfolio based on Equations in the attached images.
Discuss important implications with respect to portfolio theory as you evaluate all numbers in part a, b, and c above.

of = (WBOB) + (Ws0s)² + 2 (WBOB) (wsos)PBS

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