Coefficient of correlation between a and b

Reference no: EM131015571

An investor is considering three mutual funds. The first two are stock funds A and B, the third is a T-bill money market fund that yields a rate of 3%. The probability distribution of the risky funds is as follows:

State	Probability	Return on Stock A	Return on Stock B
1	0.30	7%	-9%
2	0.5	11%	20%
3	0.2	-10%	26%

(a) What are the expected returns and standard deviations of stock fund A and B? What is coefficient of correlation between A and B?

(b) Tabulate and draw the investment opportunity set of the two risky funds. Use investment proportions for the stock fund of zero to 100% in increments of 20%.

Reference no: EM131015571

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