QUESTION 2 The probability distributions of returns for Stock A and Stock B are given below: State of Economy Proba
Posted: Thu May 26, 2022 7:01 am
QUESTION 2
The probability distributions of returns for Stock A and Stock B
are given below:
State of Economy Probability
Stock A Stock B
Bull 0.3 20%
5%
Bear 0.7 12%
10%
REQUIRED
a. Calculate the expected returns for Stock A and Stock B. [5
marks]
b. Calculate the variances of returns for Stock A and Stock B. [5
marks]
c. Calculate the correlation of Stock A with Stock B. [5
marks]
d. Based on the correlation obtained in part (c), calculate the
expected return and standard deviation of the minimum variance
portfolio.
The probability distributions of returns for Stock A and Stock B
are given below:
State of Economy Probability
Stock A Stock B
Bull 0.3 20%
5%
Bear 0.7 12%
10%
REQUIRED
a. Calculate the expected returns for Stock A and Stock B. [5
marks]
b. Calculate the variances of returns for Stock A and Stock B. [5
marks]
c. Calculate the correlation of Stock A with Stock B. [5
marks]
d. Based on the correlation obtained in part (c), calculate the
expected return and standard deviation of the minimum variance
portfolio.