# Question: you are trying to develop a strategy for investing in...

###### Question details

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 (in $’s) |
Stock Y (in $’s) |

0.4 |
Recession |
- 55 |
-80 |

0.1 |
Slow growth |
30 |
50 |

0.2 |
Moderate growth |
110 |
130 |

0.3 |
Fast growth |
160 |
200 |

Note: Include Excel formulas.

(a) Compute the expected return for stock X and for stock Y.

(b) Compute the standard deviation for stock X and for stock Y.

(c) If the correlation between X and Y is 0.98,compute the mean and the standard deviation of a simple portfolio with 50% of the initial investment in Stock X and 50% of the initial investment in Stock Y.