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Problem 1 Consider the following information about three stocks Rate of Return if State Occurs Probability of State of Economv 0.3 0.4 0.3 State of
Problem 1 Consider the following information about three stocks Rate of Return if State Occurs Probability of State of Economv 0.3 0.4 0.3 State of Economy Stock A Stock B Stock C Boom Average Recession 25% 12% 7% 7% 12% 5% -5% -0% 25% Your portfolio manager has invested 40% of your money in Stock A, 20% in Stock B, and the rest in Stock C a) b) c) d) What is the expected return of your portfolio? What is the covariance between Stocks A and B? What is the correlation coefficient between Stocks B and C? What is the standard deviation of your portfolio? Hint: Instead of using the portfolio variance formula for three stocks, you can save time by calculating the return on the portfolio for all three states of the economy
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