State of Economy Probability Investment A Investment B
- Bust 5% -25.00% 25.00%
- Below 25% -10% 5%
- Average 40% 10% 6%
- Above average 20% 30% -3%
- Boom 10% 50% -10%
Required:
Question 1: Calculate the expected rate of return and standard deviation on each alternative. Identify which investment offers better expected returns and which offers higher risk.
Question 2: Determine the covariance and correlation between investment A and B
Note: Please provide reasons to support your answer.