Suppose that the return, labelled r, on a domestic bond can take on the followingvalues, with these probabilities:
r: 2, 3, 4
Prob: 0.4, 0.3, 0.3
(a) Find the expected value or mean (μr) and variance (σ2r ) of r.
(b) A foreign bond has a return, labelled r∗, with mean 2 and variance 2. The covariancebetween the two returns, r and r∗, is 1. Suppose investors hold 75% of their portfolios in the domestic bond and 25% in the foreign bond. Find the expected value (mean) and variance of the portfolio return.