Use the following data to answer the question below: State of the Economy
Question:
Use the following data to answer the question below:
State of the Economy Probability Return(A) Return (B)
Strong Boom 0.15 -0.60 0.75
Weak Boom 0.20 -0.30 0.50
Average 0.05 -0.10 0.15
Weak Recession 0.40 0.20 -0.10
Strong Recession 0.20 0.80 -0.55
(i) Which investment would a risk taker invest in and why?
(ii) Which investment would a risk averse investor choose and why?
(iii) Which investment would a rational investor choose and why?
(iv) Calculate and interpret the covariance between the rates of return.
(v) Calculate and interpret the correlation coefficient of the rates of return.
Understanding Basic Statistics
ISBN: 9781111827021
6th Edition
Authors: Charles Henry Brase, Corrinne Pellillo Brase