lile liveslor theludes deviation of ortfolionever goes belowapproximately 20%-Why? all U.S. the stocks in her portfolio, the standa roblems (7 questions, 55 points, suggested time 60 minutes) or full credit on the problems, show all work and label answers clearly. Show in detail how you arrive at. you nswers: show the formulas you use and your step-by-step calculations 9. (12 points) You've estimated future returns for two stocks, using economic scenarios. Your predictions an summarized in the table below: Return on Scenario Probability Stock A Stock B Severe recession Mild recession Normal growth Boom (35)(.20) .05 .15 .55 .30 .00 2s 25 .20 5s Standard deviation 287 179 Assume you decide to invest 40% of your money in stock A and 60% of your money in stock B. a. b. What rate of return will your portfolio earn in each scenario? What will be your portfolio's (i) expected return? (ii) standard deviation? (5 points) Over the last five years, Portfolio A eamed an average return of 1 i%, while Portfolio B earned an average return of 15%. During that time, the average return on the stock market was 12% and the risk-free rate of interest was 3%. Fund A's standard deviation was 19%, and Fund B's was 30%, which fund demonstrated better results on a risk-adjusted basis? (Your answer should be based on a specific calculation.) 20. 21. (8 points) You have developed the following predicted returns for a company's stoek: State of the Economy Recessiorn A verage growth High growth Boom Rate of Return (45%) 10% 20% 50% Probability .20 .30 .20 The company's beta is 1.5. The risk-free rate of interest is 3% and the expected return on the market is 9%. Based on this information, should you invest in this stock? (Justify your answer with specific calculations.) Page 3 of 5