1. [Probability Theory] There are two stocks, A and B. In Fin6301, we have discussed the concept of a portfolio, which is just a basket of several stocks. That is, if you invest 40% of your money in Stock A and the rest (60\%) in Stock B, the portfolio return is: Rp=40%RA+60%RB. Suppose the possible returns next vear and the corresnnndino nrohahilities are oiven as follows Your financial advisor recommended two portfolios constructed using both stocks with portfolio P1 investing 20% in Stock A, while portfolio P2 investing 60% in Stock A. (a) What are the returns of each portfolio in each state of the economy? (b) What are the expected returns for stocks A and B, and portfolios P1 and P2, i.e., E(RA),E(RB), E(Rp1), and E(Rp2) ? (c) If you only held Stock B originally, now by holding portfolio P1, are you better off? (hint: comparing their expected returns and volatilities) (d) Comparing Stock A with portfolio P2, does reduction in volatility justify loss in expected return when holding the portfolio