1. A stock fund has the following return distribution:

State of the Economy Probability HPR

Boom 0.2 50%

Normal growth 0.6 15%

Recession 0.2 -20%

1. What is the mean and standard deviation of the holding period return for the stock fund?
2. There is also a bond fund which has an expected return of 5% and a standard deviation of 8%. You decide to form a portfolio which invests 30% in the bond fund, and invests 70% in the stock fund. What are the expected return and the standard deviation of your portfolio?