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Portfolio-Expected return, Covariance between Funds, Risk

You are trying to set up a portfolio that consists of a corporate bond fund and a common stock fund. the following information about the annual return (per $1,000)of each of these investments under different economic condition is available, along with probability that each of these economic conditions will occur:
probability economic corporate common
conditions bond fund stock fund
0.10 Recession -$30 -$150
0.15 Stagnation 50 -20
0.35 Slow growth 90 120
0.30 Moderate growth 100 160
0.10 High growth 110 250

Compute the covariance of the corporate bond fund and the common stock fund.
(I need detail calculation and explanation.)

Suppose that you wanted to create a portfolio that consists of a corporate bond fund and a common stock fund. Compute the portfolio expected return and portfolio risk for each of the following percentages invested in a corporate bond fund:
a. 30% b. 50% c. 70%
d. on the bases of the results of (a) through (c), which portfolio would you recommended? Explain.

(I need a detail calculation and explanation for - Computation the portfolio expected return and portfolio risk for each of the following percentages invested in a corporate bond fund)

Solution Summary

The Expected return of a portfolio comprising stock fund and bond fund, Covariance between the Funds, and the Risk of the portfolio are calculated.

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