here are two stocks in the market, Stock A and Stock B. The price of Stock A today is $78. The price of Stock A next year will be $67 if the economy is in a recession, $90 if the economy is normal, and $100 if the economy is expanding. The probabilities of recession, normal times, and expansion are .23, .57, and .20, respectively. Stock A pays no dividends and has a correlation of .73 with the market portfolio. Stock B has an expected return of 14.3 percent, a standard deviation of 34.3 percent, a correlation with the market portfolio of .27, and a correlation with Stock A of .39. The market portfolio has a standard deviation of 18.3 percent. Assume the CAPM holds.

a-1.	What is the return for each state of the economy for Stock A? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
a-2.	What is the expected return of Stock A? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

a-3.	What is the variance of Stock A? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)

a-4.	What is the standard deviation of Stock A? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

a-5.	What is the beta of Stock A? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)

a-6.	What is the beta of Stock B? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)

a-1.	Recession		%
	Normal		%
	Expansion		%
a-2.	Expected return		%
a-3.	Variance
a-4.	Standard deviation		%
a-5.	Beta of Stock A
a-6.	Beta of Stock B

b-1.	What is the expected return of a portfolio consisting of 70 percent of Stock A and 30 percent of Stock B? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

b-2.	What is the standard deviation of a portfolio consisting of 70 percent of Stock A and 30 percent of Stock B? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

c.

What is the beta of the portfolio in part (b)? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)

b-1.	Expected return		%
b-2.	Standard deviation		%
c.	Beta of the portfolio