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You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a $1,000 investment in each stock under
You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a $1,000 investment in each stock under six different economic conditions has the probability distribution shown to the right. Complete parts (a) through (d) below. 2 Returns Probability Economic Condition Stock X Stock Y 0.02 Extreme recession - 100 -979 0.08 Recession - 60 - 300 0.25 Stagnation 40 - 120 0.35 Slow growth 0.20 Moderate growth 150 0.10 High growth 350 80 120 a. Compute the expected return for Stock X and for Stock Y. The expected return for Stock X is $ (Type an integer or a decimal. Do not round.) The expected return for Stock Y is $7. (Type an integer or a decimal. Do not round.) b. Compute the standard deviation for Stock X and for Stock Y. The standard deviation for Stock X is $ . (Round to two decimal places as needed.) The standard deviation for Stock Y is - (Round to two decimal places as needed.) c. Compute the covariance of Stock X and Stock Y. The covariance of Stock X and Stock Yis (Round to two decimal places as needed.) d. Would you invest in Stock X or Stock Y? Explain. It is better to invest in Stock because it has a while yielding a
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