(a) Donald is considering the merits of two securities. He is interested in the common shares of A Co. and B Inc. The expected monthly rate of return of securities is shown below: State of Affair Boom Normal Recession Probability 0.1 0.5 0.4 Stock A 40% 20% -10% Stock B -20% 8% 15% At the time of purchase, the market value is $70/share for A and $50/share for B. Donald plans to invest 10,000 shares of Stock A and 6,000 shares in Stock B. (i) Compute the portfolio weights of Stock A and Stock B. (3 marks) (1) Compute the expected returns of Stock A and Stock B. (3 marks) (iii) Assume that the covariance between Stock A and Stock B is -28% (0.0028). Compute the expected rate of return and variance of rate of return of Donald's portfolio. (9 marks) (iv) If the risk-free rate is 2%, the market risk premium is 18% and the beta of Stock A is 0.75, estimate the required and expected rates of return of Stock A. Should Donald invest in Stock A? Show the calculations. (4 marks)