Question

2. The following table shows that the economy next year has three possible states: Good ,...

2. The following table shows that the economy next year has three possible states: Good , Average and Poor. It also shows the correponding probability of each states. The column of stock A shows the investment rate of return (%) for stock A; and the column of Stock B shows the invesment rate of return for stock B.

Return (%)

State

Probability

Stock A

Stock B

Good

0.4

15

8

Average

0.5

9

10

Poor

0.1

6

12

a) Calculate the expected value of stock A and B’s return (1 mark)

b) Calculate the variance of the return of Stock A and Stock B

c) Calculate the covariance and correlation of Stock A and Stock B’s return

d) An investor invests in 40% of his money in stock A and 60% of his money in stock B, what is his portfolio’s expected return? What is his portfolio’s variance and standard deviation?

please explain about the calculating process

Math   Statistics-And-Probability   
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