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Consider the two Stocks X and Y given in the table below and answer the following questions. Bear Market 0.3 -20% -15% Probability Stock

Consider the two Stocks X and Y given in the table below and answer the following questions. Bear Market 0.3 -20% -15% Probability Stock X Stock Y Normal Market 0.5 18% 20% Bull Market 0.2 50% 10% What are the expected returns on Stocks X and Y? (b) What are the standard deviations of the returns on X and Y? (c) Suppose an investor who has $10,000 to invest invested $8,000 in Stock X and $2,000 in Stock Y, what is the expected return on her portfolio? (d) If the one-year Canadian treasury bill currently yields 4.5%, what is the risk premium for this investor's equity portfolio?

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