Question
The returns of shares S and T vary depending on the state of the economic growth. State of economy Probability of economic state occurring Return
The returns of shares S and T vary depending on the state of the economic growth.
State of economy | Probability of economic state occurring | Return of S if economic state occurs (%) | Return of T if economic state occurs (%) |
|
|
|
|
Boom | 0.15 | 45 | 18 |
Growth | 0.70 | 20 | 17 |
Recession | 0.15 | -10 | 16 |
Required:
a) Calculate the expected return and standard deviation for share S.
b) Calculate the expected return and standard deviation for share T.
c) Calculate the covariance and correlation coefficient between returns on S and returns on T.
d) Choose additional portfolios consisting of different proportions of funds invested in both S and T shares, and draw the efficient frontier for a two asset portfolio consisting of S and T.
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