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Consider the following table: Stock Fund Bond Fund Scenario Probability Rate of Return Rate of Return Severe recession 0.10 ?32% ?10% Mild recession 0.15 ?10% 6% Normal growth 0.35 22% 10% Boom 0.40 37% 7% a. Calculate the...

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Finance

Consider the following table:

Stock FundBond Fund
ScenarioProbabilityRate of ReturnRate of Return
Severe recession0.10?32%?10%
Mild recession0.15?10%6%
Normal growth0.3522%10%
Boom0.4037%7%


a. Calculate the values of mean return andvariance for the stock fund. (Do not round intermediatecalculations. Round "Mean return" value to 1 decimal place and"Variance" to 2 decimal places.)

Mean return%
Variance


b. Calculate the value of the covariance betweenthe stock and bond funds. (Negative value should beindicated by a minus sign. Do not round intermediate calculations.Round your answer to 2 decimal places.)

Covariance=   

Answer & Explanation Solved by verified expert
3.8 Ratings (320 Votes)
Answer aComputation of mean return of Stock fundCalculation of mean return ofStockPossible returnsProbabilityProductXpXX pX0320100320101500150220350077037040148X0178Mean return of stock fundX    See Answer
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Transcribed Image Text

Consider the following table:Stock FundBond FundScenarioProbabilityRate of ReturnRate of ReturnSevere recession0.10?32%?10%Mild recession0.15?10%6%Normal growth0.3522%10%Boom0.4037%7%a. Calculate the values of mean return andvariance for the stock fund. (Do not round intermediatecalculations. Round "Mean return" value to 1 decimal place and"Variance" to 2 decimal places.)Mean return%Varianceb. Calculate the value of the covariance betweenthe stock and bond funds. (Negative value should beindicated by a minus sign. Do not round intermediate calculations.Round your answer to 2 decimal places.)Covariance=   

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