Calculate the expected return for each of the stocks. (Do not round intermediate

Question

Calculate the expected return for each of the stocks. (Do not round intermediate calculations and round your answers to 2 decimal places. (e.g., 32.16))

Calculate the standard deviation for each of the stocks. (Do not round intermediate calculations and round your answers to 2 decimal places. (e.g., 32.16))

What is the covariance between the returns of the two stocks? (Do not round intermediate calculations and round your answer to 6 decimal places. (e.g., 32.161616))

What is the correlation between the returns of the two stocks? (Do not round intermediate calculations and round your answer to 4decimal places. (e.g., 32.1616))

Explanation / Answer

Expected return J = .20*-.03 + .55*.128 + .25*.208 = 11.64%

Expected return K = .20*.024 + .55*.052 + .25*.082 = 5.39%

SD J = 8.04%

SD of K = 6.55%

(Formula for sd; Square root of {sum of (Squared deviation * Probability)}

Covariance = 0.9787 * .0804 * .0655 = 0.005154

Correlation = 0.9787

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