Consider the following scenario involving Hippo Valley Estates, a producer of sugar, and Lions Maid, a producer of ice cream:
NORMAL YEAR FOR SUGAR ABNORMAL YEAR
Bullish Bearish Sugar crisis
Stock Market Stock Market
PROBABILITY 50% 30% 20% RATE OF RETURN
HIPPO VALLEY 30% 15% -20%
LIONS MAID 10% 5% 25%
T-bills 20% 20% 20%

Calculate:
1. The expected return and standard deviation of Hippo Valley Estates.
2. The expected return and standard deviation for Lions maid.
3. The covariance between the returns of Hippo Valley and Lions Maid.
4. The correlation coefficient.
5. The standard deviation and expected return of a portfolio in which you have invested 50% in T-bills, 25% in Hippo Valley and 25% in Lions Maid.
6. The standard deviation and expected return of a portfolio in which you have invested 50% in Hippo Valley and 50% in Lions Maid.

Answer rating: 100% (QA)

To answer these questions we need to use some basic concepts of portfolio theory and finance Lets start by defining some terms Expected return The ave... View the full answer