FIN Correlation Related Multiple Problems 2023 Business & Finance
2023 Q1Based on the following information State of Economy Probability of State of Economy Rate of Return
Q1Based on the following information: 
State of Economy 
Probability of 
Rate of Return 
Depression 
.12 
−.103 
Recession 
.23 
.061 
Normal 
.47 
.132 
Boom 
.18 
.213 

Calculate the expected return. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) 
Expected return 
[removed] % 
Calculate the standard deviation. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) 
Standard deviation 
[removed] % 
Q2.Consider the following information: 

Rate of Return if State Occurs 

State of 
Probability of 


Economy 
State of Economy 
Stock A 
Stock B 
Stock C 

Boom 

.15 


.37 


.47 


.27 

Good 
.45 
.22 
.18 
.11 

Poor 
.35 
− 
.04 
− 
.07 
− 
.05 

Bust 
.05 
− 
.18 
− 
.22 
− 
.08 


a. 
Your portfolio is invested 20 percent each in A and C, and 60 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16)) 
Expected return 
[removed] % 
b–1. 
What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 5 decimal places. (e.g., 32.16161)) 
Variance 
[removed] 
b–2. 
What is the standard deviation? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16)) 
Standard deviation 
[removed] % 
Q3.Stock Y has a beta of 1.8 and an expected return of 18.2 percent. Stock Z has a beta of 0.8 and an expected return of 9.6 percent. If the riskfree rate is 5.2 percent and the market risk premium is 6.7 percent, the rewardtorisk ratios for stocks Y and Z are [removed] and [removed] percent, respectively. Since the SML rewardtorisk is [removed] percent
Q4. Based on the following information: 
State of 
Return on 
Return on 
Bear 
.107 
−.050 
Normal 
.110 
.153 
Bull 
.078 
.238 

Assume each state of the economy is equally likely to happen. 
Calculate the expected return of each of the following stocks. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) 
Expected return 

Stock A 
[removed]% 
Stock B 
[removed]% 

Calculate the standard deviation of each of the following stocks. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) 
Standard deviation 

Stock A 
[removed]% 
Stock B 
[removed]% 

What is the covariance between the returns of the two stocks? (Negative amount should be indicated by a minus sign, Do not round intermediate calculation and round your final answer to 6 decimal places. (e.g., 32.161616)) 
Covariance 
[removed] 
What is the correlation between the returns of the two stocks? (Negative amount should be indicated by a minus sign, Do not round intermediate calculation round your final answer to 4 decimal places. (e.g., 32.1616)) 
Correlation 
[removed] 
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