4. The stocks of Dell and HP have the following expected returns:

State of Economy Probability of State

of Economy

Net Cash Flows End of Year Project A Project B

0 -4,000 -5,500 1 1,500 3,500 2 3,000 2,800 3 2,500 1,900

Dell's Return if State Occurs

HP's Return if State Occurs Recession 40% -12% -15% Normal 20% 8% 6% Boom 30% 16% 13% Which company's stock is riskier, based on standard deviation? [10 points]

5. You have $1,000 and want to create a portfolio that is twice as risky as the market. Given this information, fill in the rest of the following table (show your work to receive credit): [10 points]

Asset Investment Amount Beta Expected Return Stock A $300 2.3 11% Stock B ? 2.7 13% Risk-free Asset ? ? 3%

Portfolio $1,000 ? ?