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2. The likelihood that next year is a bull market year is 50%. In contrast, you believe that a bear market may occur with 20%

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2. The likelihood that next year is a bull market year is 50%. In contrast, you believe that a bear market may occur with 20% likelihood. The following table contains information on the rates of return on various assets next year under various economic scenarios. Security Bull Normal Bear market market Market Share X -1% 18% 10% ShareY 25% 10% -15% Market 11% 8% 2% Risk-free asset 5% 5% 5% (a) Calculate the expected return and standard deviation for each of the assets in the table. (b) Calculate the covariance between 0 X and Y; I X and the market; 0 Y and the market; and o X and the riskfree asset (c) You are risk averse and would like to invest in a low risk portfolio using stocks X and Y. How much should you invest in X and how much should you invest in Y (in terms of percentages) to have a portfolio with the lowest possible standard deviation? What is the portfolio's expected return and standard deviation

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