2. You have $10,000 saved up to invest for a year, and are considering stocks (S)...
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2. You have $10,000 saved up to invest for a year, and are considering stocks (S) and/or short term Treasury bills (T). The returns from both sources are judged uncertain, of course, as the following probability table indicates: S -10% 0% 10% 20% 6% 0 0 0.10 0.10 T 8% 0 0.10 .0.30 0.20 10% 0.10 0.10 00 (1) If you split your investment 30% in stock and 70% in Treasury bills, what would be the expected return and standard deviation? (10 points) (2) Are the return of stock and bond independent? (10 points) 2. You have $10,000 saved up to invest for a year, and are considering stocks (S) and/or short term Treasury bills (T). The returns from both sources are judged uncertain, of course, as the following probability table indicates: S -10% 0% 10% 20% 6% 0 0 0.10 0.10 T 8% 0 0.10 .0.30 0.20 10% 0.10 0.10 00 (1) If you split your investment 30% in stock and 70% in Treasury bills, what would be the expected return and standard deviation? (10 points) (2) Are the return of stock and bond independent? (10 points)
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