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Given the following information, Probability of Economy Stock A Stock B Stock C Economy Recession 0.7 -3% 0% -1% Boom ? 10% 3% 6%

Given the following information, Probability of Economy Stock A Stock B Stock C Economy Recession 0.7 -3% 0% -1% Boom ? 10% 3% 6% a) What are the expected returns for stock A, B and C, respectively? List the formula, input numbers and calculate answers b) What is the standard deviation/risk for stock A? List the formula and input numbers, no calculation needed c) What is the portfolio return given that you have $10,000, allocate $5,000 in stock A and $2,000 in stock B and the rest in stock C? List the formula and input numbers, no calculation needed. d) The principle of diversification states that as the number of stocks under one portfolio increases, the portfolio risk more likely A) increases or B) decreases?

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