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Consider the following information: State of Economy Probability Stock A Stock B Recession 0.3 15% 20% Normal 0.4 10 -10 Boom 0.3 11 8 a)

Consider the following information:

State of

Economy

ProbabilityStock AStock BRecession0.315%20%Normal0.410-10Boom0.3118

a) Calculate the expected return, standard deviation of stock A and B? (7 Marks) b) Assume stock A is 50% and remainder in stock B (Portfolio), calculate expected return, expected return and standard deviation of the portfolio? (5 Marks) c) Which stock do you prefer Stock A, Stock B or portfolio? (3 Marks)

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