# Question: Assume that there are four equally likely states of the

Assume that there are four equally likely states of the economy: boom, low growth, recession, and depression. Also, assume that the percentage annual return you obtain when you invest a dollar in gold or the stock market is shown in the file S04_65.xlsx.
a. Find the covariance and correlation between the annual return on the market and the annual return on gold. Interpret your answers.
b. Suppose you invest 40% of your available money in the market and 60% of your money in gold. Determine the mean and standard deviation of the annual return on your portfolio.
c. Obtain your part b answer by determining the actual return on your portfolio in each state of the economy and then finding the mean and variance directly, without using any formulas involving co variances or correlations.
d. Suppose you invested 70% of your money in the market and 30% in gold. Without doing any calculations, determine whether the mean and standard deviation of your portfolio would increase or decrease from your answer in part b. Give an intuitive explanation to support your answers.

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