1. Calculate the following questions. Show all work and assumptions State of Economy Probability of state Returns if state occurs (%) BB Recession Normal Boom 0.10 0.70 0.20 BA -5 +15 +40 -5 +12 +28 BC -7.5 +15 +26 Required: (a) (0) Calculate the expected return for each of the three stocks. (ii) A portfolio is constructed with 30% invested in BA, 25% in BB and 45% in BC. What is the expected return of this portfolio? What is the standard deviation of this portfolio? (iii) Based on the expected return of the portfolio in (i), what is the risk-free interest rate, if the expected market return is 14% and the portfolio beta is 1.2