1) Consider the following information: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Recession .20 .05 .19 Normal .60 .08 .16 Boom .20 .16 .32

Calculate the expected return for Stock A.

Calculate the expected return for Stock B.

Calculate the standard deviation for Stock A.

Calculate the standard deviation for Stock B.

2)

a. What is the expected return on an equally weighted portfolio of these three stocks?

b. What is the variance of a portfolio invested 10 percent each in A and B and 80 percent in C?

Consider the following information: State of Economy Recession Normal Boom Probability of State of Economy .20 .60 .20 Rate of Return if State Occurs Stock A Stock B .05 -.19 .08 .16 .16 32 Consider the following information: State of Economy Boom Bust Probability of State of Economy 0.68 0.32 Rate of Return if State Occurs Stock A Stock B Stock C 0.15 0.27 0.11 0.11 0.13 0.01