1. Consider the following information:

State of Economy	Probability of State of Economy	Rate of Return If State Occurs
		Stock A	Stock B	Stock C
Boom	0.25	14%	15%	33%
Bust	0.75	12%	3%	-6%

What is the expected return and standard deviation of returns on an equally weighted portfolio of these three stocks?

2. Consider the following information:

State of Economy	Probability of State of Economy	Rate of Return If State Occurs
		Stock K	Stock M
Boom	0.10	25%	18%
Growth	0.20	10%	20%
Normal	0.50	15%	4%
Recession	0.20	-12%	0%

1. An individual plans to invest $5,000: $3,000 in Stock K and $2,000 in Stock M. What are the stock weights for this portfolio? (w_K = 60%, w_M = 40%)
2. Using the weights computed in Part a, what is the expected return for the portfolio? (E(R_p) = 8.88%)

c. Using the weights computed in Part a, calculate the variance and standard deviation of the portfolio.