Problem 2 Based on the return profile of scenarios below: State of Economy Probability of State Stock X Stock Y 1 0.1 -2% 3% 2 0.6 5% 7% 3 0.3 8% -10% a. [2pts] What are the expected return for Stocks X and Y? b. [2pts] What are the the standard deviations of returns on Stocks X and Y? c. (1pt] [Extra credit and not required) What is the covariance between returns on these two stocks? The covariance formula is cov(X,Y) = Eps(x, E[X]) (Y, E|Y1) s=1 Problem 3 What is the effective annual rate of a. [1pt] an investment that provides a 1% return quarterly. b. [1pt] an investment that provides a 2% return semi-annually. [1pt) a 5-year investment that provides a 20% total return. d. [1pt] a 10-year monthly payment loan with annual percentage rate of 6%. e. [1pt] a 8-year quarterly payment loan with annual percentage rate of 4%. C