Problem:
Securities A & B have the following rates of return & probabilities of occurrence:
Probability ROR on Securities: A B
0.3 -2% 28%
0.3 4% 12%
0.4 20% 3%
a. calculate mean & standard deviation in the return for each asset.
b. calculate the covariance & the correlation coefficient on the returns of the two assets
c. calculate the mean & standard deviation in the return on the following portfolios of the two assets:
(1) 75% in A and 25% in B
(2) 50% in each
(3) 25% in A & 75% in B
ROR: Rate of Return