Capital Market Expectations Scenario Probability Rate of Return Stock fund Bond fund Severe recession 0.05 -37 -9 3. Mild recession 0.25 -11 15 4 Normal growth 0.40 14 8. Воom 0.30 30 -5 Using the...

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Extracted text: Capital Market Expectations Scenario Probability Rate of Return Stock fund Bond fund Severe recession 0.05 -37 -9 3. Mild recession 0.25 -11 15 4 Normal growth 0.40 14 8. Воom 0.30 30 -5 Using the data above: i. Calculate the expected returns and risks for stock fund and the bond fund ii. Calculate the portfolio expected return and the portfolio risk i. What is the interrelationship between between the two assets and explain the direction of the relationship and what is the degree of relationship between the two assets? Suppose the probability of each scenario changed to Severe recession: 10%, Mild recession; 20%; normal growth: 35% and boom: 35% i. Would you expect the Expected return and risk for the stock fund to be more, less or equal to the values above? Why? ii. Calculate the new expected return and risk of the Bond fund Calculate the new covariance between the stock and bond funds? Explain why the absolute value of the covariance has changes ii.