SELF 5.12 You are trying to develop a strategy for d. On the basis of the results of (a) through (c), which port- Test investing in two different stocks. The anticipated folio would you recommend? Explain. annual return for a $1,000 investment in each stock under four different economic conditions has the following proba- 5.16 You plan to invest $1,000 in a corporate bond fund or bility distribution: in a common stock fund. The following information about the annual return (per $1,000) of each of these investments under different economic conditions is available, along with the Returns probability that each of these economic conditions will occur: Probability Economic Condition Stock X Stock Y Economic Corporate Common 0.1 Recession - 100 50 Probability Condition Bond Fund Stock Fund 0.3 Slow growth 150 0.3 Moderate growth 80 -20 0.10 Recession -70 -300 0.3 Fast growth 150 -100 0.15 Stagnation 30 -100 0.35 Slow growth 80 100 0.30 Moderate growth 100 150 Compute the 0.10 High growth 120 350 a. expected return for stock X" and for stock Y. b. standard deviation for stock X and for stock Y. Compute the c. covariance of stock X and stock Y. a. expected return for the corporate bond fund and for the d. Would you invest in stock X or stock Y? Explain. common stock fund. 170 CHAPTER 5 Discrete Probability Distributions b. standard deviation for the corporate bond fund and for common stock fund. Compute the portfolio expected return the common stock fund. and portfolio risk for each of the following situations: c. covariance of the corporate bond fund and the common a. $300 in the corporate bond fund and $700 in the common stock fund. stock fund. d. Would you invest in the corporate bond fund or the com- b. $500 in each fund. OXY = 4161 mon stock fund? Explain. c. $700 in the corporate bond fund and $300 in the common stock fund. 5.17 Suppose that in Problem 5.16 you wanted to create a d. On the basis of the results of (a) through (c), which port- portfolio that consists of the corporate bond fund and the folio would you recommend? Explain