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Problem 6-7 Consider the following table: Stock Fund Bond Fund Scenario Probability Rate of Return Rate of Return Severe recession 0.10 46% 20% Mild recession

Problem 6-7

Consider the following table:

Stock Fund Bond Fund
Scenario Probability Rate of Return Rate of Return
Severe recession 0.10 46% 20%
Mild recession 0.20 24% 14%
Normal growth 0.30 8% 5%
Boom 0.40 44% 5%

a.

Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 4 decimal places.)

Mean return %
Variance

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 4 decimal places.)

Covariance

rev: 10_11_2013_QC_37085

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