FIN3003 Home Assignment 2 (Due date: 30 Oct) The assignment can be handwritten or typed. Submission in pdf format via Moodle. You are required to show your work. Providing answers alone will not get you full credit. The following table presents the performance of stock and bond funds under various scenarios. Scenario Rate of return of bond fund (%) -6 Probability Rate of return of stock fund (%) 0.1 -35 0.2 -10 0.5 15 0.2 40 Severe recession Mild recession Normal growth Boom 13 6 -2 a. Calculate the expected returns of the stock and bond funds. (4 marks) b. Calculate the standard deviations of the stock and bond funds. (4 marks) C. Calculate the correlation coefficient of the stock and bond funds. (2 marks) d. Suppose an investor forms a portfolio with stocks and bonds. Find the investment opportunity set in differing proportions. (8 marks) Weights in stock fund Portfolio expected Portfolio standard deviation return 0.0 0.2 0.4 0.6 0.8 1.0 e. Draw the investment opportunity set in part (d). (2 marks) f. Calculate the weight in stock fund, expected return and standard deviation of the minimum-variance portfolio. (6 marks) 1