Fin 533 Homework
Due Thursday, April 9, 2009
Given the following information:
State
Probability
Best Candy’s Returns
Sugar Cane’s Returns
Sugar crisis
Bearish
Bullish
0.30
0.40
0.30
-25%
10%
25%
35%
-5%
1%
E(rB) = 4%
σB = 19.97%
E(rS) = 8.8%
σS = 17.33%
1. Compute the correlation coefficient between Best Candy and Sugar Cane
2. Compute the expected return and portfolio standard deviation of a portfolio consisting of 50%
in Best Candy and 50% in Sugar Cane.