1. An individual is considering investing in either the stock market, the bond market or a fully-insured bank account (i.e. zero risk) which offers a return of 4%. The individual has identified the following possibilities regarding the stock and bond markets. probability stock returns bond returns .25 2% 3% .40 8% 5% .35 11% 8% (a) Calculate the expected return, variance and standard deviation for stocks and bonds, and the covariance and correlation. (b) Which investment would a risk-averse individual undertake? Explain. How would your answer change if the bank account offered 7%? Explain. How would your answer change if the bank account offered 9%? Explain. 1. An individual is considering investing in either the stock market, the bond market or a fully-insured bank account (i.e. zero risk) which offers a return of 4%. The individual has identified the following possibilities regarding the stock and bond markets. probability stock returns bond returns .25 2% 3% .40 8% 5% .35 11% 8% (a) Calculate the expected return, variance and standard deviation for stocks and bonds, and the covariance and correlation. (b) Which investment would a risk-averse individual undertake? Explain. How would your answer change if the bank account offered 7%? Explain. How would your answer change if the bank account offered 9%? Explain