$5\mathrm{.}16$ You plan to imest $$1,000$ in a corporate bond fund or in a common stock fund. The following information about the annual return $($per $$1,000)$ of each of the se imestments under different economic conditions is available, along with the probability that each of these economic conditions will occur:

$\backslash$table$[[$Probability$,\backslash$table$[[$Economic$],[$Condition$]],\backslash$table$[[$Corporate$],[$Bond Fund$]],\backslash$table$[[$Common$],[$Stock Fund$]]],[0\mathrm{.}10,$Recession,$-70,-300],[0\mathrm{.}15,$Stagnation,$30,-100],[0\mathrm{.}35,$Slow growth,$80,100],[0\mathrm{.}30,$Moderate growth,$100,150],[0\mathrm{.}10,$High growth,$120,350]]$

Compute the

a$.$ expected return for the corporate bond fund and for the common stock fund.

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CHAPTER $5$ Discreto Probability Distributions

b$.$ standard deviation for the corporate bond fund and for the common stock fund.

c$.$ covariance of the corporate bond fund and the common stock fund.

d$.$ Would you invest in the corporate bond fund or the common stock fund? Explain.

$5\mathrm{.}17$ Suppose that in Problem $5\mathrm{.}16$ you wanted to create a portfolio that consists of the corporate bond fund and the

common stock fund. Compute the portfolio expected return and portfolio risk for each of the following situations:

a$.$ $$300$ in the corporate bond fund and $$700$ in the common stock fund.

b$.$ $$500$ in each fund.

${}_{x_y}=4161$

c$.$ $$700$ in the corporate bond fund and $$300$ in the common stock fund

d$.$ On the basis of the results of $($a$)$ through $($c$),$ which portfolio would you recommend? Explain.