37. Standard Deviation and Beta There are two stocks in the market, Stock A and Stock B. The price of Stock A today is $75. The price of Stock A next year will be 564 if the economy is in a recession, $87 if the economy is normal, and 597 if the economy is expanding. The probabilities of recession, normal times, and expansion are 2, 6, and 2, respectively. Stock A pays no dividends and has a correlation of 7 with the market portfolio. Stock B has an expected return of 14 percent, a standard deviation of 34 percent, a correlation with the market portfolio of 24, and a correlation with Stock A of 36. The market portfolio has a standard deviation of 18 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? a b. What are the expected return and standard deviation of a portfolio consisting of 70 percent of Stock A and 30 percent of Stock B? c. What is the beta of the portfolio in part (b)