Expected Return and Standard Deviation.

Do NOT use Excel to get answers. Manually calculate returns, standard deviations, covariance, and correlation coefficient using the formulas illustrated on PowerPoint slides. You need to show the calculation procedures for all questions listed here. Only showing final answers will not get any credit.

Given the following information:

State                      Probability                   X                                 Y                                

Boom                    .25                               15%                           10%

Normal                  .60                               10%                             9%

Recession             .15                               5%                             10%

a. Calculate the expected return and the standard deviation for X and Y respectively.

b. What is the expected return for a portfolio with an investment of $6,500 in asset X and $3,500 in asset Y? [Hint: Calculate portfolio weights, Wx and Wy , first.]

c. Calculate the standard deviation for this portfolio using three methods:

1. Use Formulas (5) and (6)

2. Use Formula (10)

3. Use Formula (11)

Remember that you need to show the calculation procedures for all questions listed here. Only showing final answers will not get any credit.