Consider the following information:
Scenario Probability X return rate Y return rate
Boom 25% 15% 10%
Normal 60% 10% 9%
Recession 15% 5% 10%
• Calculate the expected return and standard deviation of returns of each stock.
• Then calculate the expected return and standard deviation of return for a portfolio with an investment of $6000 (60%) in stock X and $4000 (40%) in stock Y. To do so, you need to calculate the variance and standard deviation of each stock and the covariance of returns between stock X and stock Y.