If you have 30 percent of your total investment in Equity Eddie's, with the expected income of your calculation from (1) and a standard deviation of your calculation from (2), and the remainder 30 percent in Barry Borrower's, with the expected income of your calculation from (1) and a standard deviation of your calculation from (2). The correlation coefficient is 0.6. Determine the expected income and standard deviation for this portfolio.

Equity Eddie Company financial risk expected value 5% 10% 70% 10% 5% operating income 5 200% 280 60 350 interest expense 0 0 0 0 0 before tax 5 2 280 60 350 taxs 1.4 5.6 78.4 16.8 98 net income 72 144.00 288 432 504 total Value 3.6 14.4 201.6 43.2 25.2 288

Standard Deviations Given expected Given Expected Given Expected^2 Probability GE*P 72 288 -216 46656 0.05 2332.8 144 288 -144 20736 0.1 2073.6 288 288 0.00 0 0.7 0 432 288 144 20736 0.1 2073.6 504 288 216.00 46656.00 0.05 2332.8 Total 8812.8 standard deviation =square root of 8812.8 = 93.88

Barry Borrowers company risk Expected value 5% 10% 70% 10% 5% operating income 55 22 308 66 38.5 interest expense 20 4 28 4 2 before tax 35 18 280 62 36.5 taxes 10 5 78.4 17.4 10.2 net income 50 130 288 446 526 Total Value 2.5 13 201.6 44.6 26.3 288

Standard Deviations Given Expected Given Expected Given Expected^2 Probability GE*P 50 288 -238 56644 0.05 2832.2 130 288 -158 24964 0.1 2496.4 288 288 0 0 0.7 0 446 288 158 24964 0.1 2496.4 520 288 238 56644 0.05 2832.2 total 10657.2 standard deviation =square root of 10657.2 = 103.23