3. There are two stocks in the market, Stock A and Stock B. he price of Stock A today is $75. The price of Stock A next year will be $60 if the economy is in a ecession, $70 if the economy is normal, and $100 if the economy is expanding. The probabilities of ecession, normal times, and expansion are .2, .6, and .2, respectively. Stock A pays no dividends and has correlation of .7 with the market portfolio. tock B has an expected return of 20 percent, a standard deviation of 40 percent, a correlation with the narket portfolio of .30, and a correlation with Stock A of 0.5. The market portfolio has a standard eviation of 16 percent. Assume the CAPM holds. a. If you are a typical, risk-averse investor with a well-diversified portfolio, which stock would you prefer? Why? b. What are the expected return and standard deviation of a portfolio consisting of 50 percent of Stock A and 50 percent of Stock B ? c. What is the beta of the portfolio in part (b)? 3. There are two stocks in the market, Stock A and Stock B. he price of Stock A today is $75. The price of Stock A next year will be $60 if the economy is in a ecession, $70 if the economy is normal, and $100 if the economy is expanding. The probabilities of ecession, normal times, and expansion are .2, .6, and .2, respectively. Stock A pays no dividends and has correlation of .7 with the market portfolio. tock B has an expected return of 20 percent, a standard deviation of 40 percent, a correlation with the narket portfolio of .30, and a correlation with Stock A of 0.5. The market portfolio has a standard eviation of 16 percent. Assume the CAPM holds. a. If you are a typical, risk-averse investor with a well-diversified portfolio, which stock would you prefer? Why? b. What are the expected return and standard deviation of a portfolio consisting of 50 percent of Stock A and 50 percent of Stock B ? c. What is the beta of the portfolio in part (b)