Question
There are three different potential states of the economy next year. The chart below shows you the returns for stocks Green and Wave under each
There are three different potential states of the economy next year. The chart below shows you the returns for stocks Green and Wave under each potential economic situation, along with the probability of each situation occurring (note that the probabilities are not all the same). These are the only two stocks in the economy.
Economic State | Probability | Green | Wave |
Boom | 0.1 | 13% | 7% |
Average | 0.7 | 3% | 6% |
Bust | 0.2 | -6% | -3% |
Green and Wave can be combined on a 50/50 basis to form portfolio Green Wave. Consider Portfolio Green Wave to be the market portfolio. Based on the information above, calculate the following: Please use the specified units. To help you out, the standard deviation of Green is 5.05569% and Greens covariance with portfolio Green Wave is .00207. Be certain to show your work and carry answer to 3 decimal places for B and G; and 6 decimal places for C and D.
- Expected return of wave (percent)?
- Standard Deviation of wave (percent)?
- Covariance between Green and Wave (decimal)?
- Correlation Coefficient between Green and Wave (decimal)?
- Expected return of portfolio Green Wave (percent)?
- Standard Deviation of portfolio Green Wave (percent)?
- Beta of Green (decimal)?
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