Miss Maple is considering 2 securities, A and B, and the relevant information is given below:

State of Economy Prob. Return on A Return on B

Bear 0.4 0.03 0.065

Bull 0.6 0.15 0.065

(a). Calculate the expected returns and standard deviations of the two securities.

b) Suppose Miss Maple invested $2,500 in security A and $3,500 in security B. Calculate the expected return and standard deviation of her portfolio.

(c). Suppose Miss Maple borrowed from her friend 40 shares of security B which is currently sold at $50, and sold all of the shares. She promised her friend to pay back in a year with the same number of shares of security B. Then she bought security A with the proceeds obtained in the sales of B shares and the cash of $6,000 she owned. Calculate the expected return and standard deviation of the portfolio.