1)

Consider the following information about Stocks A and B:

				Rate of Return if State Occurs
State of	Probability of
Economy	State of Economy			Stock A			Stock B
Recession		0.30			0.05			0.30
Normal		0.45			0.22			0.10
Irrational exuberance		0.25			0.05			0.50

The market risk premium is 6 percent, and the risk-free rate is 2 percent. (Round your answers to 2 decimal places. (e.g., 32.16))

The standard deviation on Stock A's return is percent, and the Stock A beta is . The standard deviation on Stock B's return is percent, and the Stock B beta is . Therefore, based on the stock's systematic risk/beta, Stock

is "riskier".

2) Consider the following information:

				Rate of Return if State Occurs
State of	Probability of
Economy	State of Economy			Stock A			Stock B			Stock C
Boom		0.55			0.15			0.22			0.42
Bust		0.45			0.14			0.04			0.05

a.	What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Expected return

%

b.	What is the variance of a portfolio invested 24 percent each in A and B and 52 percent in C? (Do not round intermediate calculations and round your answer to 6 decimal places. (e.g., 32.161616))

Variance