The returns of two stocks and one bond in 4 possible states of economies are given...

Transcribed Image Text:

The returns of two stocks and one bond in 4 possible states of economies are given below. (20pts) Probability Stock A Stock B Bond C -10% 1% 6% Boom 9% (1) What is expected return and the standard deviation of the three assets? (2) What are the pairwise correlations among the 3 assets (i.e., PAB, PAC, PBC)? (3) What is the Sharpe ratio of a 10% stock A, 20% stock B, and 70% bond portfolio (assuming R-0)? Recession 10% Normal-bad 30% Normal-good 40% 20% -25% -5% 10% 30% 5% 5% 3% 1% The returns of two stocks and one bond in 4 possible states of economies are given below. (20pts) Probability Stock A Stock B Bond C -10% 1% 6% Boom 9% (1) What is expected return and the standard deviation of the three assets? (2) What are the pairwise correlations among the 3 assets (i.e., PAB, PAC, PBC)? (3) What is the Sharpe ratio of a 10% stock A, 20% stock B, and 70% bond portfolio (assuming R-0)? Recession 10% Normal-bad 30% Normal-good 40% 20% -25% -5% 10% 30% 5% 5% 3% 1%

Answer rating: 100% (QA)

To answer these questions we will use the data in the table to calculate the expected returns standard deviations and correlations for the three assets We will also calculate the Sharpe ratio for the ... View the full answer