You are given the following information: State of Economy Bear Normal Bull Return on Stock A 114 103 085 Return on Stock B -.057 160 245 Assume each state of the economy is equally likely to happen. a. Calculate the expected return of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation of each stock. (Do not round intermediate mal

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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You are given the following information:
State of
Economy
Bear
Normal
Bull
Return on
Stock A
a.
Stock A
Stock B
b. Stock A
Stock B
114
103
085
Assume each state of the economy is equally likely to happen.
a. Calculate the expected return of each stock. (Do not round intermediate calculations
and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
b. Calculate the standard deviation of each stock. (Do not round intermediate
calculations and enter your answers as a percent rounded to 2 decimal places, e.g.,
32.16.)
c. What is the covariance between the returns of the two stocks? (A negative answer
should be indicated by a minus sign, Do not round intermediate calculations and
round your answer to 6 decimal places, e.g., .161616.)
d. What is the correlation between the returns of the two stocks? (A negative answer
should be indicated by a minus sign, Do not round intermediate calculations and
round your answer to 4 decimal places, e.g., .1616.)
Return on
Stock B
C.
Covariance
d. Correlation
-.057
160
245
%
%
%
%
Transcribed Image Text:You are given the following information: State of Economy Bear Normal Bull Return on Stock A a. Stock A Stock B b. Stock A Stock B 114 103 085 Assume each state of the economy is equally likely to happen. a. Calculate the expected return of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the covariance between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) d. What is the correlation between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 4 decimal places, e.g., .1616.) Return on Stock B C. Covariance d. Correlation -.057 160 245 % % % %
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