Consider the following probability distribution for stocks X and Y :

State	Probability	Return on stock X	Return on stock Y
1	.25	13%	14%
2	.5	10%	10%
3	.25	-6%	-8%

The correlation coefficient between the two stocks is 0.20. Write your answers to two decimal places.

1) What are the expected rates of return of stocks X and Y?

2) What is the risk for stocks X and Y?

3) If there exist a risk-free asset (r f ) that earns 3% annual return. Find the weights of stock X and Y in the optimal risky portfolio

4) Return and risk of the optimal risky portfolio (P)

5) IF Ahmad wants to invest in a complete portfolio. What proportion of investment should Ahmad invest in the optimal risky portfolio? Identify Weight of P, Weight of stocks X and Y, and Weight of risk-free rate. Ahmad degree of risk aversion is 7.

6) What are the risk and return for Ahmad complete portfolio?

7) What is Ahmad utility when investing in the complete portfolio?

NOTE )Solution without using Excel The solution is manual