Question

Consider the following table:

Stock Fund Bond Fund Scenario Probability Rate of Return Rate of Return

Severe recession 0.05 –25 % –10 %

Mild recession 0.25 –5 % 16 %

Normal growth 0.40 10 % 9 %

Boom 0.30 15 % –6 %

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 2 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 2 decimal places.)

Answer 1