1. Expected return and standard deviation Aa Aa Wilson holds a two-stock portfolio that invests equally in Kelevra Industries and Old Glory Insurance Company (50% of his portfolio is in each stock). Each stock's expected return for the next year will depend on market conditions. The stocks' expected returns if there are poor, average, or great market conditions are shown below State of Probability of Kelevra Old Glory Economy State of Economy Industries Insurance Co Poor Average Great 0.25 0.50 0.25 -12% 14% 4096 -2% 6% 14% What is the portfolio's expected return over the next year? ? 10.25% ? 10.75% ? 10.00% ? 9.00% ? 9.25% What is the expected standard deviation of portfolio returns? ? ? 13.85% 12.02% 13.10% 12.74% 12.38% ?

1. Expected return and standard deviation Aa Aa Wilson holds a two-stock portfolio that invests equally in Kelevra Industries and Old Glory Insurance Company (50% of his portfolio is in each stock). Each stock's expected return for the next year will depend on market conditions. The stocks' expected returns if there are poor, average, or great market conditions are shown below: State of Economy Probability of State of Economy Kelevra Industries Old Glory Insurance Co. Poor 0.25 -12% -2% Average 0.50 14% 6% Great 0.25 40% 14% What is the portfolio's expected return over the next year? 10.25% 10.75% 10.00% 9.00% 9.25% What is the expected standard deviation of portfolio returns? 13.85% 12.02% 13.10% 12.74% 12.38%