The joint probability distribution on the returns of two securities X and Y is shown in the table below.
Y 7 10 14
8 0.12 0.03 0.3
9 0.15 0.09 0.06
10 0.05 0.18 0.02
a. Calculate the expected return for each security
b. Calculate the variance and standard deviation for each security
c. Suppose an investor would like to constitute a portfolio of 40 % of X and 60 % of Y, what will be the expected return and the risk associated to this portfolio?
The joint probability distribution is determined.