Question: You have been given this probability distribution for the holding period return for a stock: State of the Economy Probability HPR (Fund A) HPR (Fund

You have been given this probability distribution for the holding period return for a stock:

State of the Economy

Probability

HPR (Fund A)

HPR (Fund B)

Boom

.50

7%

25%

Normal growth

.3

-5%

10%

Recession

.2

20%

-25%

1. What are the expected holding period returns for Fund A and Fund B?

2. What are the expected standard deviations for Fund A and Fund B?

3. What are the covariance and correlation coefficient between the returns of Fund A and Fund B?

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