Consider an investment portfolio that consists of three different stocks, with the amount invested in each asset shown below. Assume the risk-free rate is 2% and the market risk premium is 6%. Use this information to answer the following questions.

Portfolio Stock Weights Betas

2nd National Bank 30% 1.4

Chesapeake Energy 50% 0.8

Sodastream 20% 1.2

a. Compute the expected return for each stock using the CAPM and assuming that the stocks are all fairly priced. (2 points)

b. Compute the portfolio beta and the expected return on the portfolio. (2 points) c. Now assume that the portfolio only includes 60% invested in 2nd National Bank and 40% invested in Sodastream (i.e., a two-asset portfolio). The yearly-return standard deviation of 2nd National Bank is 48% and the yearly-return standard deviation of Sodastream is 58%. The correlation coefficent between 2nd National BankPentairs returns and Sodastreams returns is 0.5. What is the expected yearly-return standard deviation for this portfolio? (2 Points)