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Consider the following possible returns on stock A, stock B, and the market portfolio over the next year: State of economy Probability of state Return
Consider the following possible returns on stock A, stock B, and the market portfolio over the next year: State of economy Probability of state Return on Return on Return on occurring stock A stock B market Recession 0.2 -6% 20% -5% Normal 0.5 10% 8% 8% Boom 0.3 18% -20% 12% (d) What are the betas of the two stocks? (e) Calculate the expected return and standard deviation of a portfolio that is composed of 40% of A and 60% of B
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