(Answered) Assume that over the next year you believe there are only 2

Engineering

Assume that over the next year you believe there are only 2 possible states of the world, each with probability 50%. The table below gives the returns on the US and Brazilian equity markets in these two scenarios.

Prob. US ret. Brz. Ret.

50% -10% -15%

50% 20% 35%

a. What are the expected returns on the US and Brazil (in percent)?

b. What are the volatilities (standard deviations) of the returns on the US and Brazil (in percent)?

c. What is the covariance between the returns on the US and Brazil?

d. What is the correlation between the returns on the US and Brazil?

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