Reference no: EM132377616
You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a? $1,000 investment in each stock under four different economic conditions has the probability distribution shown to the right. Complete parts? (a) through? (d).
Returns
Probability Economic Condition Stock X Stock Y
0.2 Recession -55 -80
0.4 Slow growth 20 50
0.1 Moderate growth 100 140
0.3 Fast growth 140 175
a. Compute the expected return for stock X and for stock Y.
The expected return for stock X is ?$___________?( Do not? round.)
The expected return for stock Y is ?$____________?(Type an integer or a decimal. Do not? round.)
b. Compute the standard deviation for stock X and for stock Y.
The standard deviation for stock X is ?$___________?(Round to two decimal places as? needed.)
The standard deviation for stock Y is ?$____________?(Round to two decimal places as? needed.)
c. Compute the covariance of stock X and stock Y.
The covariance of stock X and stock Y is _______________?(Type an integer or a decimal. Do not? round.)
d. Would you invest in stock X or stock? Y? Explain.
?Risk-averse investors would invest in stock (Y or X) because it has a (lower expected return, higher expected return, lower standard deviation or higher standard deviation) whereas risk takers would invest in stock (Y or X) because it has a (higher standard deviation, higher expected return, lower expected return or lower standard deviation.)