Consider the following table: Scenario Probability Stock Fund Rate of Return Bond Fund Rate of Return Severe recession 0.10 −38% −14% Mild recession 0.20 −6.0% 10% Normal growth 0.35 10% 4% Boom 0.35 40% 4% Required: 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 4 decimal places.) b. Calculate the value of the covariance between the stock and bond funds
Consider the following table: Scenario Probability Stock Fund Rate of Return Bond Fund Rate of Return Severe recession 0.10 −38% −14% Mild recession 0.20 −6.0% 10% Normal growth 0.35 10% 4% Boom 0.35 40% 4% Required: 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 4 decimal places.) b. Calculate the value of the covariance between the stock and bond funds
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Consider the following table:
| Scenario | Probability | Stock Fund Rate of Return |
Bond Fund Rate of Return |
|---|---|---|---|
| Severe recession | 0.10 | −38% | −14% |
| Mild recession | 0.20 | −6.0% | 10% |
| Normal growth | 0.35 | 10% | 4% |
| Boom | 0.35 | 40% | 4% |
Required:
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 4 decimal places.)
b. Calculate the value of the covariance between the stock and bond funds
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