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Expected Returns: Discrete Distribution

1) The market and Stock J have the following probability distributions:

Probability rM rJ

0.3 13%1 9%

0.4 9 6

0.3 18 13

Calculate the expected rates of return for the market and Stock J. Round your answers to one decimal place.

1. Expected rate of return (Market):%
2. Expected rate of return (Stock J):%

Calculate the standard deviations for the market and Stock J. Do not round intermediate calculations. Round your answers to two decimal places.

1. Standard deviation (Market):%
2. Standard deviation (Stock J):%

2)Your retirement fund consists of a $7,000 investment in each of 18 different common stocks. The portfolio's beta is 1.10. Suppose you sell one of the stocks with a beta of 0.8 for $7,000 and use the proceeds to buy another stock whose beta is 1.6. Calculate your portfolio's new beta. Do not round intermediate calculations. Round your answer to two decimal places.