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The returns on shares S and T vary depending on the state of economic growth. Required a. Calculate the expected

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The returns on shares S and T vary depending on the state of economic growth.
The returns on shares S and T vary depending on

Required
a. Calculate the expected return and standard deviation for share S.
b. Calculate the expected return and standard deviation for share T.
c. What are the covariance and the correlation coefficient between returns on S and returns on T?
d. Determine a portfolio expected return and standard deviation if two-thirds of a fund are devoted to S and one-third devoted to T.

Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...
Transcribed Image Text:

State of economy Probability of economic state occurring Returns on S if economic state occurs (%) Returns on T if economic state occurs (%) Boom Growth Recession 0.15 0.70 0.15 45 20 -10 18 17 16

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a b c Covariances Correlation coefficient 8 25 15 11 0 548 1 d E…View the full answer


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Corporate Financial Management

Corporate Financial Management

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Authors: Glen Arnold

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Question Posted: April 07, 2016 10:46:52
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