Question

Problem 6-7

Consider the following table:

    

		Stock Fund	Bond Fund
Scenario	Probability	Rate of Return	Rate of Return
Severe recession	0.10	−34%	−9%
Mild recession	0.20	−20%	5%
Normal growth	0.30	21%	9%
Boom	0.40	36%	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 4 decimal places.)

   

Mean return	%
Variance

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

Answer 1