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 four different economic conditions has the following probability distribution:

Compute the
a. Expected return for stock X and for stock Y.
b. Standard deviation for stock X and stock Y.
c. Covariance of stock X and stock Y
d. Would you invest in stock X or stock Y? Explain.

Transcribed Image Text:

Returns Probability Economic Condition Stock X Stock Y 50 0 50 -20 150 -100 -100 0.1 0.3 Slow growth 0.3 Moderate growth 0.3 Fast growth Recession 80