1. EXPECTED MEASURE OF RETURN:

SCENARIO PROBABILITY OF SCENARIO EXPECTED RETURN IN THE SCENARIO

Boom economy 0.4 15%

Normal economy 0.3 12%

Recession 0.3 -8%

Calculate the expected return of the portfolio

2. CAPITAL ASSET PRICING MODEL:

Risk-free rate: 2.5%

Market rate of return: 8.5%

Beta: .90

Using the information above, calculate the risk of the stock