1. You have a portfolio which is comprised of 35 percent of stock A and 65 percent of stock B. What is the standard deviation of this portfolio?

State of the Economy Probability A B

Boom 0.20 22% 19%

Normal 0.50 12% 10%

Recession 0.30 -26% -4%

a.

4.39%

b.

7.14%

c.

6.41%

d.

12.02%

e.

5.68%

2. The risk-free rate is 3.1 percent and the expected return on the market is 11 percent. Stock A has a beta of 1.2. For a given year, Stock A returned 15.6 percent while the market returned 12.8 percent. The systematic portion of Stock A's unexpected return was _____ percent and the unsystematic portion was _____ percent.

a.

2.16; 3.02

b.

0.86; 2.16

c.

3.02; 2.16

d.

2.16; 0.86

e.

3.02; 0.86