(3 marks) Question 2 (32 marks) Jenny has $200,000 to invest and is considering the merits of two securities. He is interested in the common shares of X Co. and Y Inc. The possible monthly rate of return of the securities is shown below: Possible Monthly Rate of Return of Security in January 2019 State of Affair Boom Normal Recession Probability 0.2 0.5 0.3 Stock X 50% 15% -5% Stock Y -5% 8% 10% Jenny plans to invest 30% of his money in X and the remainder in Y. (a) Calculate the expected rate of return, variance and standard deviation of Stock X & Stock Y. (14 marks) (b) Assume that the covariance between Stock X and Stock Y is -0.005. Calculate the expected (7 marks) rate of return, variance and standard deviation of Jenny's portfolio. (Hint: you can express your answers for the variance and standard deviation in decimals or percentage form: For decimals, the covariance in your equation should be -0.005 For percentage, the covariance in your equation should be -50% (=-50/10000)] 2