Given the following information,

		Total Investment
		$6,000 on Stock A	$2,000 on Bond B
Economy State	Probability	Stock A Return	Bond B Return
Good	0.4	15%	4%
Normal	0.4	10%	6%
Bad	0.2	3%	8%

a) Calculate the correlation coefficient between stock A and Bond B.

b) Calculate the expected return and standard deviation of the portfolio, using BOTH scenario analysis method (calculate portfolios return in each state and then follow the definition of E(r) and standard deviation, same as in the Excel homework) and the portfolio theory formula given bellow (the easier method, utilizing E(r) and std. of A and B and the correlation coefficient between A and B).

c) Now, investor needs to rebalance the portfolio of $8,000 to have an expected return 9%. How should the investor allocate the fund between stock A and bond B (weights on A and B)?

d) If T-bill offers 2% return, is the new portfolio in part c) better or worse than the original?