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how do I calculate the product of the deviations so that I can get the Covariance number for the Bond or the stock?   Probability Stock Fund Rate of Return JxK-ProbabilityxRate of Return Squared Deviation(diff from the mean returns) Variance (Probability X Squared Deviation) Bond fund Rate of Return JxK-ProbabilityxRate of Return Squared Deviation(diff from the mean returns) Variance (Probability X Squared Deviation) Severe 0.1 -34 -3.4 2237.29 223.729 -9.00 -0.9 201.64 20.164 Mild 0.2 -20 -4 1108.89 221.778 5.00 1 25.00 5 Normal 0.3 21 6.3 59.29 17.787 9.00 2.7 81.00 24.3 Boom 0.4 36 14.4 515.29 206.116 6.00 2.4 36.00 14.4 Expected or Mean Return     13.3   669.41 Expected or Mean Return 5.20

how do I calculate the product of the deviations so that I can get the Covariance number for the Bond or the stock?   Probability Stock Fund Rate of Return JxK-ProbabilityxRate of Return Squared Deviation(diff from the mean returns) Variance (Probability X Squared Deviation) Bond fund Rate of Return JxK-ProbabilityxRate of Return Squared Deviation(diff from the mean returns) Variance (Probability X Squared Deviation) Severe 0.1 -34 -3.4 2237.29 223.729 -9.00 -0.9 201.64 20.164 Mild 0.2 -20 -4 1108.89 221.778 5.00 1 25.00 5 Normal 0.3 21 6.3 59.29 17.787 9.00 2.7 81.00 24.3 Boom 0.4 36 14.4 515.29 206.116 6.00 2.4 36.00 14.4 Expected or Mean Return     13.3   669.41 Expected or Mean Return 5.20

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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how do I calculate the product of the deviations so that I can get the Covariance number for the Bond or the stock?

  Probability Stock Fund Rate of Return JxK-ProbabilityxRate of Return Squared Deviation(diff from the mean returns) Variance (Probability X Squared Deviation) Bond fund Rate of Return JxK-ProbabilityxRate of Return Squared Deviation(diff from the mean returns) Variance (Probability X Squared Deviation)
Severe 0.1 -34 -3.4 2237.29 223.729 -9.00 -0.9 201.64 20.164
Mild 0.2 -20 -4 1108.89 221.778 5.00 1 25.00 5
Normal 0.3 21 6.3 59.29 17.787 9.00 2.7 81.00 24.3
Boom 0.4 36 14.4 515.29 206.116 6.00 2.4 36.00 14.4
Expected or Mean Return     13.3   669.41 Expected or Mean Return 5.20   63.864
      Standard Deviation   25.87295886       7.99149548

 

Expert Solution
Step 1

Data given:

Probability Stock Fund Rate of Return
A B
0.1 -34%
0.2 -20%
0.3 21%
0.4 36%

 

Probability Bond Fund   Rate of Return
A B
0.1 -9%
0.2 5%
0.3 9%
0.4 6%
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