Consider the following ex ante (expected) distributions for assets 1 and 2: marginal distributions
|
Asset 1
|
|
|
Asset 2
|
|
|
|
m
|
R1m
|
f(R1m)
|
l
|
R2l
|
f(R2l)
|
|
1
|
12%
|
0.45
|
1
|
4%
|
0.09
|
|
2
|
6%
|
0.55
|
2
|
8%
|
0.17
|
|
|
|
|
3
|
10%
|
0.35
|
|
|
|
|
4
|
14%
|
0.39
|
joint distribution (for above outcomes of return)
|
m
|
L
|
f(R1m, R2l)
|
|
1
|
1
|
0.01
|
|
1
|
2
|
0.03
|
|
1
|
3
|
0.17
|
|
1
|
4
|
0.24
|
|
2
|
1
|
0.08
|
|
2
|
2
|
0.14
|
|
2
|
3
|
0.18
|
|
2
|
4
|
0.15
|
Question
Using the ex ante data given on the preceding page, calculate the following:
A. The expected (mean) returns (E[Ri]) for assets 1 and 2
B. The variances (total risk) of return (si2) for assets 1 and 2
C. The standard deviations (total risk) of return (si) for assets 1 and 2
D. The covariance of return (sij) between assets 1 and 2
E. The correlation coefficient of return (rij) between assets 1 and 2
Additional Information
This kinds of question lies from Statistics and it is about finding expected mean, variances, standard deviation and correlation coefficient between two assets and their returns.