1. Consider the following table: ScenarioProbabilityStock Fund Rate of ReturnBon

1. Consider the following table:
ScenarioProbabilityStock Fund
Rate of ReturnBond Fund
Rate of Return
Severe recession0.10−35%−14%
Mild recession0.20−15%20%
Normal growth0.4020%13%
Boom0.3025%−10%
a. Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round “Mean return” value to 1 decimal place and “Variance” to 2 decimal places.)
b. Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)
2. A stock has a correlation with the market of 0.56. The standard deviation of the market is 29%, and the standard deviation of the stock is 37%. What is the stock’s beta?
3. A share of stock is now selling for $115. It will pay a dividend of $9 per share at the end of the year. Its beta is 1.0. What must investors expect the stock to sell for at the end of the year? Assume the risk-free rate is 5% and the expected rate of return on the market is 14%. (Round your answer to 2 decimal places.)
4. Consider the following table, which gives a security analyst’s expected return on two stocks and the market index in two scenarios:
ScenarioProbabilityMarket ReturnAggressive StockDefensive Stock
10.56%2.1%3.6%
20.5162510
a. What are the betas of the two stocks? (Round your answers to 2 decimals.
b. What is the expected rate of return on each stock? (Round your answers to 2 decimal places.)