Calculating the expected return on each stock


Question: Mr. Henry can invest in Highbull stock and Slowbear stock. His projection of the returns on these two stocks is as follows:

State of Economy Probability of State Return for Highbull Return for Slowbear

recession 0.25 -2.0% 5.0%
normal 0.60 9.02% 6.2%
boom 0.15 15.40% 7.4%

a. Calculate the expected return on each stock

b. Calculate the standard deviation of returns on each stock.

C. calculate the covariance and correlation between the returns on the two stocks.

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Finance Basics: Calculating the expected return on each stock
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