Consider the following table: a. Calculate the values of mean return and varianc
ID: 2615493 • Letter: C
Question
Consider the following table:
a. Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 4 decimal places.)
b. Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 4 decimal places.)
Covariance %-Squared
Stock Fund Bond Fund Scenario Probability Rate of Return Rate of Return Severe recession 0.10 ?44% ?13% Mild recession 0.20 ?16% 11% Normal growth 0.30 10% 4% Boom 0.40 30% 3%a. Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 4 decimal places.)
b. Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 4 decimal places.)
Covariance %-Squared
Explanation / Answer
a) Mean return for stock fund=7.4
Variance for stock fund=7.0540
b) Covariance=0.9658
1 2 3 4 5=1*3 6=2*4 7 8 9=2*7*7 10=2*8*8 11=1*7*8 Stock Fund Bond Fund Stock Fund Bond Fund Stock Fund Bond Fund Stock Fund Bond Fund Co-variance between stock fund and bond fund Scenario Probability Rate of Return Rate of Return Expected return Expected return Deviation from mean Deviation from mean Variance Variance Severe recession 0.10 -0.44 -0.13 -0.044 -0.013 -0.51 -0.16 0.0264 0.0027 0.0084 Mild recession 0.20 -0.16 0.11 -0.032 0.022 -0.16 0.11 0.0051 0.0024 -0.0035 Normal growth 0.30 0.10 0.04 0.03 0.012 0.10 0.04 0.0030 0.0005 0.0012 Boom 0.40 0.30 0.03 0.12 0.012 0.30 0.03 0.0360 0.0004 0.0036 7.4% 3.3% 7.0540% 0.5917% 0.9658%