+0.31235'79 8 Question Four [l'otal 20 Marks] Assume that ABC Lul and XYZ. I.Id are listed on the Stock Exchange for the last several years "in siuehs binve in item depending upon the state of economy but to varying degrees An analyst has conducted a study to find out how the interrelationship of the returns of ine two stocks is. He segregated different economic conditions as - Excellent, Good, Normal, and Poor and calculated the rerun ffered by each firm during such periods. He further estimated the likelihood of state of the cconomy for the next 10 years. A summary of his findings is as follows: are are two assets and three states of the economy: State of the i Probability of Past Returns (%) Economy state of ccone:) ADC Lid XYZ Lid Excellent 0.15 20.00 15.00 Good 0.15 15.00 12.00 Normal 0.50 12.00 9.00 Poor 0.20 - 3.00 1.00 Required: Compute the expected returns and standard deviations for each stock 16 Marks) Compute the covariance and the correlation coefficient between the returns of ABC Lid and XYZ Lid (10 Marks) Briefly comment on the attractiveness of these projects for .. person creating a portfolio made up of investments in ABC' and XY7. Lid [4 Marks) CS Scanned with CamScanner