QUESTION 3. Suppose you also have researched longer back on the historical rate of returns (HPYs) of Equity, Crypto and

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QUESTION 3. Suppose you also have researched longer back
on the historical rate of returns (HPYs) of Equity, Crypto and also
the Global All-Asset market index and estimated the return of each
fund and the Global index in different economic scenarios as in the
following table, and you have also known the likelihood
(probability) of the scenarios via research provided by economic
institutions which you found. (2 marks)
Scenarios
Probability
Historical annual rate of return
Equity
Crypto
Global
Recession
18%
-3.00 %
-4.00 %
-1.00%
Slow growth
25%
-1.00 %
1.00 %
0.00%
Good growth
35%
4.00 %
2.00 %
1.00%
High growth
22%
6.00 %
10.00%
4.00%
Estimate:
Expected (forecasted) rate of return (HPY) of Equity,
Crypto and the Global index. (0.5 mark)
Variance and standard deviation of the annual expected
returns of Equity, Crypto and the Global index. Also estimate the
covariance & correlation between Equity & Crypto’s returns
based on the data in the table (1 marks)
Given your estimation on each individual fund’s (Equity
& Crypto) expected return, risk and correlation in b., now if
your clients want to put money into both of these 2 funds and
combine them into an investment portfolio (Name Portfolio O), and
you have suggested her to allocate 60% in Equity and 40% in Crypto
(asset allocation/investment decision), what will be your Portfolio
O's expected return & risk? (0.5 mark)