Question
Consider the following table: Scenario Probability Stock Fund Rate of Return Bond Fund Rate of Return Severe recession 0.05 40% 9% Mild recession 0.25 14%
Consider the following table:
| Scenario | Probability | Stock Fund Rate of Return | Bond Fund Rate of Return |
|---|---|---|---|
| Severe recession | 0.05 | 40% | 9% |
| Mild recession | 0.25 | 14% | 15% |
| Normal growth | 0.40 | 17% | 8% |
| Boom | 0.30 | 33% | 5% |
Required:
a. Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round your answer 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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Key Financial Market Concepts
Authors: Bob Steiner
2nd Edition
0273750127, 978-0273750123
