FINC 4542 --- Assignment 1

(Show work--- formulas with values plugged in)

The following information applies to the next 4 questions

State of Probability Stock X S&P 500

Economy

Boom 30% 50% 10%

Normal Growth 50% 18% 20%

Recession 20% -20% -15%

1. What is the expected return on stock X?

2. What is the standard deviation of returns on stock X?

3. What is the covariance of returns between stock X and the S&P 500?

4. What is the correlation coefficient between stock X and the S&P 500?

The following information applies to the next 4 questions

Year Returns

MSFT S&P 500

2013 40% 10%

2014 18% 17%

2015 33% 23%

5. What is the mean return for MSFT?

6. What is the standard deviation of returns for MSFT?

7. What is the covariance of returns between MSFT and the S&P 500 stock index?