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7. Suppose that you find the following information about two possible real estate investments: Probability Return on A Return on B Bad State 20% 3%

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7. Suppose that you find the following information about two possible real estate investments: Probability Return on A Return on B Bad State 20% 3% 16% Status Quo 50% 14% 9% Good State 30% 22% 4% a. (8 pts.) What is the expected return and standard deviation of returns for each individual security? b. (8 pts. You wish to form a portfolio of these two stocks with 50% of the investment in A and 50% of the investment in B. What would be the expected return and standard deviation of returns for this portfolio? C. (3 pts) How much diversification benefit does this represent

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