Reference no: EM132508937

Mr. Corporate Frank is an investor contemplating to buy shares of X Limited and Y Limited. A securities analyst has provided the investor with the following data:

State of nature/ economy        Probability of state occurring   Return from X Share (%)  Return from Y Share (%)

A                                                   0.1                                           -8                                 14

B                                                   0.2                                              10                                 -4

C                                                   0.4                                               8                                    6

D                                                     0.2                                                   5                              15

E                                                   0.1                                                         -4                         20

Question (a) Calculate the expected return and Standard deviation (Risk) for each share X and Y.

Question (b) Calculate the covariance between the returns of share of the two securities X and Y and comment on your results. 

Question (c) Calculate and interpret the Correlation Coefficient between the returns of share of the two securities X and Y. 

Question (d) Frank has won Shs10 million in sports betting and he intends to spends 60% of the funds by investing in X securities and the balance (40%) the funds in Y securities.

Required: Calculate the expected return of the portfolio X&Y