Consider the following table: Calculate the values of mean return and variance f
ID: 2712896 • Letter: C
Question
Consider the following table:
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.)
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.)
rev: 10_11_2013_QC_37085
References
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Consider the following table:
Explanation / Answer
Answer:
a. Mean Return of Stock Fund = Sum of (Expected Return x Probability) = (-0.30 x 0.10) + (-0.12 x 0.15) + (0.06 x 0.35) + (0.39 x 0.40) = 0.129 = 12.9%
Variance = Sum of (Square of Deviation from mean x Probability) = [{12.9 - (-30)}2 x 0.10]+ [{12.9 - (-12)}2 x 0.15]+ [{12.9 - 6}2 x 0.35]+ [{12.9 - 39}2 x 0.40] = 184.041 + 93.0015 + 16.6635 + 272.484 = 566.19
b. Covariance between Stock and Bond Funds = Sum of [ Probability x {(Stock Return - Mean Stock Return) (Bond Return - Mean Bond Return)} = [0.10 x (-42.90)(-11 - 2.8)] + [0.15 (-24.90)(8-2.8)] + [0.35 (6.9)(-0.8)] + [0.40 (26.1) (5 - 2.8)] = 59.202 - 19.422 - 1.932 + 22.968 = 60.816