Answer the following:

Problem Five [15 marks! You work for a large investment management firm. The analysts with your rm have made the following forecasts for the returns of stock A and stock B: Probabili Stock A Stock B VERY VERY WEAK 60.00% VERY WEAK 50.00% WEAK 18.00% AVERAGE . . 30.00% STRONG 12.00% -15.00% 50.00% VERY Smoxcl 5.00% 22.00% 60.00% VERY VERY STRONG 10.00% -50.00% 70.00% 100.0% Answer the following questions: a) Calculate the expected returns, variance and the standard deviations for stock A and B. b) What is the covariance of returns for Stock A and Stock B? What is the correlation coefcient for Stock A and Stock B? c) What is the expected return and standard deviation of a portfolio where 40% of the portfolio is in stock A and 6% of the portfolio is in stock B? d) Create a table that has the expected return and standard deviation for different weights in each stock. This can be done using an excel data table. Start with 100% in A and zero in B, and increments of 10%, complete the table. The last row, will have 0% in A and 100% in B. Then chart (or graph) your results. weight in weight in B A Portfolio standard deviation ortfolio exected return Link to the answer for 30% and Link to the answer for 30% and 70%, let the weights change... 70%, let the weights change... 0% 100% 10% 90% 20% 80% 30% 70% 40% 60% 50% 50% 60% 40% 70% 30% 80% 20% 90% 10% 100% 0% Note: All calculations should be rounded to one decimal place if you are using percentages, if you are using decimals then the answer should be rounded to three decimal places