Valuing Investments

Consider the following table:Stock FundBond Fund


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Probabilit yRate of Return Rate of Return Severe recession0.10 −44% −13%

Mild recession0.20 −16% 11%

Normal growth0.30 10% 4% Boom0.40 30% 3% a.Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round “Mean return” value to 1 decimal place and “Variance” to 4 decimal places.) Mean return % Variance b.Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 4 decimal places.) Covariance

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