You work for a large investment management firm. The analysts with your firm have made the following forecasts for the returns of stock A and stock B: weight in B 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% STRONG VERY STRONG VERY VERY STRONG EXTREMELY STRONG EXTREMELY WEAK VERY VERY WEAK weight in A 100% 90% 80% 70% 60% 50% VERY WEAK WEAK SOMEWHAT WEAK Somewhat strong 40% 30% a) Calculate the expected returns, variance and the standard deviations for stock A and B. b) What is the covariance of returns for Stock A and Stock B? What is the correlation coefficient for Stock A and Stock B? 20% 10% 0% c) What is the expected return and standard deviation of a portfolio where 30% of the portfolio is in stock A and 70% of the portfolio is in stock B? d) Create a table that has the expected return and standard deviation for different weights in each stock. This can be done using an excel data table. Start with 100% in A and zero in B, and increments of 10%, complete the table. The last row, will have 0% in A and 100% in B. Then chart (or graph) your results. Probability 2% 7% 11% 14% 16% 18% 14% 10% 6% 2% 100.0% Stock A 65% 55% 30% 20% 18% 10% -10% -17% -45% -55% Portfolio standard deviation Link to the answer for 20% and 80%, let the weight in A change... Stock B -80% -65% -50% -25% 15% 25% 50% 75% 80% 95% portfolio expected return Link to the answer for 20% and 80%, let the weight in A change... Note: All calculations should be rounded to one decimal place if you are using percentages, if you are using decimals then the answer should be rounded to three decimal places.