Consider the following information about three stocks: Rate of Return If State Occurs State of Probability of Stock B Stock C Economy State of Economy Stock A $5050$ Boom $20\mathrm{.}38$ Normal $55161412$ Bust $25003050$Stock A has a beta of $0\mathrm{.}325$ and Stock B has a beta of $1\mathrm{.}000.$ Assuming that neither of these stocks is over or

undervalued:

a$)$ What is the market risk premium and risk$-$free rate?

b$)$ What would be the beta of a portfolio consisting of $40\%$ of Stock A and $60\%$ of Stock B$?$

c$)$ What would be the expected return of the portfolio under b$)?$

Problem $3$

a$)$ A portfolio consisting of Stocks $1$ and $2$ has an expected return of $14\%.$ What is the standard deviation of this

portfolio given the information about Stocks $1$ and $2$ in Table $3\mathrm{.}1?$

b$)$ A portfolio consisting of Stocks $3$ and $4$ has zero variance. What is the weight of Stock $4$ in this portfolio given

the information about Stocks $3$ and $4$ in Table $3\mathrm{.}2?$