The annual returns on stocks 1 and 2 for three possible states of the economy are given

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The annual returns on stocks 1 and 2 for three possible states of the economy are given in Table 5.42.

a. Find and interpret the correlation between stocks | and 2.

b. Consider another stock (stock 3) that always yields an annual return of 10%. Suppose you invest 60% of your money in stock 1, 10% in stock 2, and 30% in stock 3. Determine the standard deviation of the annual return on your portfolio.

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Managerial Statistics

ISBN: 9780534389314

1st Edition

Authors: S. Christian Albright, Wayne L. Winston, Christopher Zappe

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Question Posted: Jul 28, 2023 07:49 AM

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The annual returns on stocks 1 and 2 for three possible states of the economy are given

Question:

TABLE 5.42 Returns for Stocks 1 and 2 Probability 0.50 0.30 0.20 State Good Average Bad **** Stock 1 0.40 0.20 0.10 Stock 2 0.20 0.40 0.08

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Managerial Statistics

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