Consider the Probability Distribution Below ACalculate the Standard Deviations of a and B

question 20

Essay

Consider the probability distribution below.(Note that the expected returns of A and B have already been computed for you.)
$$\begin{array} { | c | c | c | c | } \hline \text { State } & \mathbf { p } ( \mathbf { s } ) & \mathbf { r } _ { \mathrm { A } } & \mathbf { r } _ { \mathrm { B } } \\\hline \text { Recession } & 0.3 & - 0.11 & 0.16 \\\text { Normal } & 0.4 & 0.13 & 0.06 \\\text { Boom } & 0.3 & 0.27 & - 0.04 \\\hline \text { Expected Return: } && 0.1 & 0.06 \\\hline\end{array}$$ a.Calculate the standard deviations of A and B.
b.Calculate the covariance and correlation between A and B.
c.Calculate the expected return of the portfolio that invests 30% in stock A and the rest in stock B.
d.Calculate the standard deviation of the portfolio in part b.

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