Consider the following two funds and their estimated returns under different states of the economy:
State of economy Probability Estimated Return (Fund A) Estimated Return (Fund B)
Great 30% 10% 25%
Average 30% 15% 11%
Poor 40% 20% 15%
Calculate the following:
a. Expected return for fund A and for fund B
b. Standard deviation of returns for fund A and fund B
c. Covariance between returns of fund A and fund B
d. Correlation between returns of fund A and fund B
If you invest $2,000 in Fund A and $6,000 in Fund B, Calculate the following:
- Portfolios' Expected Return
- Portfolio's Standard Deviation