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3. Currently the federal funds rate is 3.25%, and the markets expect the Federal Reserye to increase it to 4.5913 by the end ofthe year.

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3. Currently the federal funds rate is 3.25%, and the markets expect the Federal Reserye to increase it to 4.5913 by the end ofthe year. What the Central Bank might actually do depends on inflation reports in the coming months, so the rate hike may be less or may be more. The following table illustrates how a stock portfolio and a bond portfolio might perform under different monetary policy scenarios. [211]] Federal Funds Rate Stock Portfolio Returns, X Bond Portfolio Returns, 'I" Less contraction-a 0% 4.5% 3% More contractionar 3% a. What is the expected return of the stock portfolio X? What is the expected return of the bond portfolio Y? [5] I). What is the standard deviation for the stock portfolio X? What is the standard deyiation for the bond portfolio '1'? [5] c. What is the correlation between stocks and bonds? [5] d. If you build a portfolio 2, with 223 bonds and 1K3 stocks, what is the standard deyiation of this mixed portfolio? [5]

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