You have invested in stock A and B. There are two states of economy, the recession and the boom. The probability of the recession is 60%. Economic state Return A Return B Boom 40% 10% Recession 5% 20% (a) Calculate the expected return for stock A and B. (b) Calculate the standard deviation of stock A and B. (c) Calculate the correlation between stock A and B. (d) Calculate the standard deviation of a portfolio where ¼ of your money is invested in stock A and the remainder in stock B. (e) Calculate the standard deviation of a portfolio with equal weights in the risky assets.
My answer for a is E(R) = 0.19 or 19% and E(R) = 0.16 or 16% b is 0.1715 or 17.15% and 0.4899 or 4.9% c is – 0.1266
However, I am stuck for par D and E. Can you help please.