Given the following probability distributions for stocks A and B:

State Probability of Occurrence Return on A Return on B

Bust 0.4 5% 10%

Boom 0.6 25% -10%

(a)Compute the correlation coefficient of these two stocks. (b)Assume that the inflation rate and risk free rate are, respectively, 4% and 6%, compute the expected (nominal) rate of return and REAL risk premium of an equally-weighted portfolio composing of these two stocks. < E(RP) = 7.5%andREAL risk premium = 1.5% > (c)Compute the standard deviation of this 2-stock portfolio.< P = 0>