Consider the following information about two stocks:

State of Economy Probability of State Economy Rate of Return if state occurs

Stock A Stock B

Boom 0.35 14% 22%

Normal 0.50 8 10

Bust 0.15 4 3

a. Calculate the expected return for Stock A and Stock B

b. Calculate the standard deviation for Stock A and Stock B

c. What is the coefficient of variation (CV) for Stock A and Stock B

d. If your portfolio is invested 45% in Stock A and 55% in Stock B, what is the portfolio return?

e. If your portfolio is invested 45% in Stock A, 55% in Stock B, and the correlation coefficient between Stock A and Stock B is -0.40, what is the portfolio standard deviation?

f. If the expected T-bill (risk free) rate is 3.20 percent, what is the expected risk premium on the portfolio?

g. Calculate the Sharpe ratio for this portfolio.