Scenario Probability Stock Fund Rate of Return Bond Fund Rate of Return Severe recession 0.10 −41% −14% Mild recession 0.20 −21% 20% Normal growth 0.40 26% 13% Boom 0.30 31% −10%   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 2 decimal places.)   b. Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer

Essentials of Business Analytics (MindTap Course List)
2nd Edition
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Chapter5: Probability: An Introduction To Modeling Uncertainty
Section: Chapter Questions
Problem 30P: Suppose that the return for a particular large-cap stock fund is normally distributed with a mean of...
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Consider the following table:
 

Scenario Probability Stock Fund
Rate of Return
Bond Fund
Rate of Return
Severe recession 0.10 −41% −14%
Mild recession 0.20 −21% 20%
Normal growth 0.40 26% 13%
Boom 0.30 31% −10%

 

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 2 decimal places.)

 



b. Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

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