Ms. Smith wants to invest in two securities, ABC and PQR, and the relevant information is below:

State of the Economy

Probability

Return on ABC (%)

Return on PQR (%)

Bear

0.25

-15%

4%

Moderate

0.5

5%

4%

Bull

0.25

20%

4%

1. Calculate expected returns and standard deviations of two securities.

b.Ms. Smith shorts $1,000 of PQR and invests all proceeds from this short sale as well as $3,000 of her own money into ABC. What is the expected return and the standard deviation of her portfolio?