2. You are given the following information regarding the distribution of returns for corpo- rate bonds and common stocks

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2 You Are Given The Following Information Regarding The Distribution Of Returns For Corpo Rate Bonds And Common Stocks 1 (229.77 KiB) Viewed 94 times

2. You are given the following information regarding the distribution of returns for corpo- rate bonds and common stocks. The following data are profits per $1,000 invested in each option under different economic conditions, along with the probability that each of these economic conditions will occur. Calculate the correlation coefficient rxy of returns between the two investments. Investment f(xi, yi) Economic Condition Corporate Bonds (X) Common Stocks (Y) 0.20 Recession -$30 -$150 0.25 Stagnation $50 -$20 0.35 Slow growth $90 $120 0.20 Moderate Growth $100 $160 0.15 High Growth $110 $250 Hint: You must first calculate the expected value, variance, and covariance for X and Y. Fill in a table similar to the one attached to the end of this assignment to help in your calculations. 3. Suppose you are the Chief Financial Officer for a publicly traded company. Your firm's analysts forecast that the company's share price X (in dollars per share) at year-end will follow a normal distribution with u = 50 and o = 6. Based on this forecast, what is the probability that: (a) X < 38? (b) X > 38? (c) 38 < X < 47? (d) X > 562 (e) X < 38 or X > 59? Hint: Standardize X and use the pnorm function in R.