Question e

FIN 3003 Principles (Investments 1851 Home Assignment 2 The following table presents the performance of stock and bond funds under various scenarios Scenario Probability Rate of return of Rate of return of stock fund ( 0) bond fund (%) Severe recession 0.05 -3 6 ~23 Mild recession 0'25 -10 12 Normal growth 0'50 15 6 Boom 0,20 34 4 a. Calculate the expected returns of the stock and bond funds (4 marks) h. Calculate the standard deviations of the stock and bond uids (4 marks) c. Calculate the correlation coefficient of the stock and bond funds. (2 marks) d. Suppose an investor forms a portfolio with stocks and bonds. Find the investment opportunity set in differing proportions (10 marks) Weights in Portfolio expected Portfolio standard stock fund return deviation 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 er Draw the investment opportuni f. Calculate the weight in stock eturn and standard deviation of the minimum-variance portfolio. (6 marks) hupx'llwwwaonnebemmm/lefasx |75lXIHN-3003-HmneAuignment-2pd