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4. Assume that the economy can be in three possible states next year: boom, normal, or slow economic growth. An expert source has calculated that P(boom)F.30, P(normal).50, and P(Slow 20. The returns for Stock A, RA, and Stock B, RB, under each of the economic states are provided in the table a) What is the expected value and standard deviation of the returns for stock A. E(Ra) (2*.3)(12*0.5)+(0.05*0.2)F0.13 Variance: (0.2-132(.3)+(12-.132(5)+(0.05-.132(.2)-0.024 St dev- (.024)A.5 0.0529 b) What is the expected value and standard deviation of the returns for stock c) What is the joint probability distribution for the returns of stock A and stock B? d) What are the covariance and the correlation coefficient of returns of stock A and stock B? Event Boom Normal Slow 0.3 0.5 0.2 0.20 0.12 0.05 0.30 0.10 0.00

4. Assume that the economy can be in three possible states next year: boom, normal, or slow economic growth. An expert source has calculated that P(boom)F.30, P(normal).50, and P(Slow 20. The returns for Stock A, RA, and Stock B, RB, under each of the economic states are provided in the table a) What is the expected value and standard deviation of the returns for stock A. E(Ra) (2*.3)(12*0.5)+(0.05*0.2)F0.13 Variance: (0.2-132(.3)+(12-.132(5)+(0.05-.132(.2)-0.024 St dev- (.024)A.5 0.0529 b) What is the expected value and standard deviation of the returns for stock c) What is the joint probability distribution for the returns of stock A and stock B? d) What are the covariance and the correlation coefficient of returns of stock A and stock B? Event Boom Normal Slow 0.3 0.5 0.2 0.20 0.12 0.05 0.30 0.10 0.00

Algebra & Trigonometry with Analytic Geometry
Algebra & Trigonometry with Analytic Geometry
13th Edition
ISBN:9781133382119
Author:Swokowski
Publisher:Swokowski
Chapter10: Sequences, Series, And Probability
Section10.8: Probability
Problem 29E
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Part D

4. Assume that the economy can be in three possible states next year: boom, normal, or slow economic growth. An expert source has calculated that P(boom)F.30, P(normal).50, and P(Slow 20. The returns for Stock A, RA, and Stock B, RB, under each of the economic states are provided in the table a) What is the expected value and standard deviation of the returns for stock A. E(Ra) (2*.3)(12*0.5)+(0.05*0.2)F0.13 Variance: (0.2-132(.3)+(12-.132(5)+(0.05-.132(.2)-0.024 St dev- (.024)A.5 0.0529 b) What is the expected value and standard deviation of the returns for stock c) What is the joint probability distribution for the returns of stock A and stock B? d) What are the covariance and the correlation coefficient of returns of stock A and stock B? Event Boom Normal Slow 0.3 0.5 0.2 0.20 0.12 0.05 0.30 0.10 0.00
Transcribed Image Text:4. Assume that the economy can be in three possible states next year: boom, normal, or slow economic growth. An expert source has calculated that P(boom)F.30, P(normal).50, and P(Slow 20. The returns for Stock A, RA, and Stock B, RB, under each of the economic states are provided in the table a) What is the expected value and standard deviation of the returns for stock A. E(Ra) (2*.3)(12*0.5)+(0.05*0.2)F0.13 Variance: (0.2-132(.3)+(12-.132(5)+(0.05-.132(.2)-0.024 St dev- (.024)A.5 0.0529 b) What is the expected value and standard deviation of the returns for stock c) What is the joint probability distribution for the returns of stock A and stock B? d) What are the covariance and the correlation coefficient of returns of stock A and stock B? Event Boom Normal Slow 0.3 0.5 0.2 0.20 0.12 0.05 0.30 0.10 0.00
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