1) Overall economic conditions affect returns of common stocks. Suppose a financial analyst believes that four states of the national economy are possible and that each state has an equal probability of occurrence. The estimated of two stocks GM and IBM under these four states of economy are presented in the following table:

State of the economy Return of GM Return of IBM

Negative Real Growth -11 -3%

Zero Economic Growth 4 17

Modest real Growth 9 21

High Economic Growth 28 23

(1) Calculate the expected return of these two stocks.

(2) Calculate the standard deviation of return of these two stocks.

(3) Calculate the correlation of GM and IBM.

(4) Determine the expected return and standard deviation of return of the following portfolios: 70% invested in GM and 30% in IBM, and 20% invested in GM and 80% in IBM.