4.

Required information

Use the information in the table below to answer 4, 6 and 7.

State of Nature	Probability	Return on A	Return on B
I	0.2	7	10
II	0.1	10	5
III	0.7	13	13

The correlation between A and B is 0.2. The portfolio weight of A is 25%. The portfolio weight of B is 75%. The expected return for security A is 11.50% and the standard deviation for security A is 2.42%. (Note that since these are given, you only need to calculate the expected return and standard deviation for security B and for the portfolio of A and B.

The standard deviation of returns for investment B is

• 1.82%

• 2.50%

• 2.90%

• 2.70%

6. Required information

Use the information in the table below to answer 4, 6 and 7.

State of Nature	Probability	Return on A	Return on B
I	0.2	7	10
II	0.1	10	5
III	0.7	13	13

The correlation between A and B is 0.2. The portfolio weight of A is 25%. The portfolio weight of B is 75%. The expected return for security A is 11.50% and the standard deviation for security A is 2.42%. (Note that since these are given, you only need to calculate the expected return and standard deviation for security B and for the portfolio of A and B.

The covariance between investment A and investment B is

• 1.21

• 1.31

• 1.40

• 0.88

7.

Required information

Use the information in the table below to answer 4, 6 and 7.

State of Nature	Probability	Return on A	Return on B
I	0.2	7	10
II	0.1	10	5
III	0.7	13	13

The correlation between A and B is 0.2. The portfolio weight of A is 25%. The portfolio weight of B is 75%. The expected return for security A is 11.50% and the standard deviation for security A is 2.42%. (Note that since these are given, you only need to calculate the expected return and standard deviation for security B and for the portfolio of A and B.

The return standard deviation for a portfolio of 25% investment A and 75% investment B is

• 2.25%

• 1.52%

• 2.08%

• 2.41%