Question

Consider the following table: Stok Fund Rate of Natur R ate of Retur Scenario Severe recession Mild recession Normal growth a. Calculate the values of mean retum and variance for the stock fund. (Do not round Intermediate return value to 1 decimal place and "Variance" to A decimal places.) b. Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. De not round Intermediate calculations. Round your answer to 4 decimal places.

Answer 1

Answer:

Mean return of stock fund =13.7%

Variance of Stock Fund= 3.4388%-Squared.

Details as follows:

TL M Stock Fund N O Xp 0.1 2 State of economy 3 Severe recession 4 Mild recession 5 Normal growth 6 Boom 7 Mean return (u) = 8 = 9 Variance o 10 Probabilty of state of Return if economy state occurs (P) -0.043 -0.0043 0.001849 0.2 -0.17 -0.034 0.0289 0.3 0.17 0.051 0.0289 0.4 0.31 0.124 0.0961 SUM(M3:M6) 0.1367 Total 0.018687 =SUM(xp)-Mean? SUM(03:06)-M8 0.0001849 0.00578 0.00867 0.03844 0.0530749 M7 0.034388

(b) Co variance between Stock and bond funds= 1.6402%-Squared

Details as follows:

в с D E F G H Co variance Probabilty Bond Fund of state of Stock Fund Return if economy Return if state state occurs (x-mean)*(y- 38 State of economy (P) occurs (X) X*p (y) Y*p X-mean y-mean mean) 39 Severe recession 0.1 -0.043 -0.0043 -0.12 -0.012 -0.1797 -0.166 0.0298302 40 Mild recession -0.17 -0.034 0.12 0.024 -0.3067 0.074 -0.0226958 41 Normal growth 0.3 0.17 0.051 0.06 0.018 0.0333 0.014 0.0004662 42 Boom 0.4 0.31 0.124 0.04 0.016 0.1733 -0.006 -0.0010398 43 Mean return (u) = SUM(D39:D42) 0.1367 SUM(F39:F42) 0.046 Total 0.0065608 44 No. of data points (n)= 45 Covariance= (SUM(X-meanx)*(Y-meany)]/n =143/C44= 0.0016402 46 0.2