You are analyzing the returns of stock A and stock B and have collected the...
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You are analyzing the returns of stock A and stock B and have collected the following information about stock A's returns. State of the economy Boom Normal Bust Probability 0.3 0.5 0.2 Stock A's return 12% 5% -4% Additionally, your analysis shows the following information: . . The correlation between stock A and the market portfolio is equal to 0.4 The standard deviation of the market portfolio is equal to 5% The expected return of stock B is equal to 10% The standard deviation of stock B is equal to 13.89% The beta of stock B is equal to 2 The covariance between stock A and stock B is equal to 0.73% . . . a) Calculate the expected return and standard deviation of the returns of Stock A. (5 marks) b) Calculate the expected return and standard deviation of the returns of a portfolio that is 60% invested in stock A and 40% invested in stock B. (5 marks) c) Calculate the correlation between the returns of stock A and the returns of stock B. (2 marks)
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