2. The last 3 months of returns for stock A are the following:

1 2 3

5% 8% -1%

(a) What is the expected return for next month? [2 points]

(b) What is the standard deviation of the stocks return? [2 points]

(c) If returns are normally distributed with your expected return and standard deviation, what is the range of returns within which you are 95% confidence next months return will fall? [2 points]

(d) Assume I construct a portfolio that is 40% stock A from above and 60% Stock B (Stock B has a standard deviation of 20%, an expected return of 10%, and a correlation with A of 0.3). What is the standard deviation of that portfolio? [5 points]