Assume that there are three states of the world in a year: good, neutral and bad.

Suppose that the annual returns on the market and a company A in each state of the world are as follows:

State of the world	Probability	Market return	Stock A return
Good	0.3	0.2	0.05
Neutral	0.5	0.05	-0.05
Bad	0.2	-0.1	0.15

a) Construct the probability distribution of the states of the world over the 2-year period.

b) Calculate the expected return and standard deviation of the market over the 2-year period.

c) Same question for the stock return of company A.

d) Calculate the beta of A, its covariance and correlation with the market.