Consider the following two funds and their estimated returns under different states of the economy:
State of economy
Probability
Estimated Return (Fund A)
Estimated Return (Fund B)
Great
25%
10%
25%
Average
30%
15%
11%
Poor
40%
20%
15%
Calculate the following:
- Expected return for fund A and for fund B
- Standard deviation of returns for fund A and fund B
- Covariance between returns of fund A and fund B
- Correlation between returns of fund A and fund B
If you invest $2,000 in Fund A and $6,000 in Fund B, Calculate the following:
- Portfolios
Consider the following two funds and their estimated returns under different states of the economy:
| State of economy | Probability | Estimated Return (Fund A) | Estimated Return (Fund B) |
| Great | 25% | 10% | 25% |
| Average | 30% | 15% | 11% |
| Poor | 40% | 20% | 15% |
Calculate the following:
- Expected return for fund A and for fund B
- Standard deviation of returns for fund A and fund B
- Covariance between returns of fund A and fund B
- Correlation between returns of fund A and fund B
If you invest $2,000 in Fund A and $6,000 in Fund B, Calculate the following:
- Portfolios
Related questions
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 5.0%. The probability distribution of the risky funds is as follows:
| Expected Return | Standard Deviation | |
| Stock fund (S) | 11% | 40% |
| Bond fund (B) | 6 | 20 |
The correlation between the fund returns is 0.16.
Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio. (Do not round intermediate calculations and round your final answers to 2 decimal places. Omit the "%" sign in your response.)
| Portfolio invested in the stock | % |
| Portfolio invested in the bond | % |
| Expected return | % |
| Standard deviation | % |
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 4.8%. The probability distribution of the risky funds is as follows:
| Expected Return | Standard Deviation | |
| Stock fund (S) | 18% | 38% |
| Bond fund (B) | 9 | 32 |
The correlation between the fund returns is 0.14.
Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio. (Do not round intermediate calculations and round your final answers to 2 decimal places. Omit the "%" sign in your response.)
| Portfolio invested in the stock | % |
| Portfolio invested in the bond | % |
| Expected return | % |
| Standard deviation | % |
