Part a: Based on the following information, calculate the risk of each asset class in relation to its annual historic return.

Asset Class Geometric Mean (%) Standard Deviation (%)

Large Co. Stocks 12.83% 9.75%

Small Co. Stocks 14.87% 18.55%

Government Bonds 4.10% 2.58%

Corporate Bonds 4.81% 2.36%

Part b: Calculate the expected return for large and small stocks using the following information.

Asset Class Scenario Probability E(return)

Large Co. Stocks Bull Market 0.40 18.50%

Flat Market 0.30 4.50%

Bear Market 0.30 -15.00%

Small Co. Stocks Bull Market 0.40 30.00%

Flat Market 0.30 8.50%

Bear Market 0.30 -22.00%

Part c: Based on your calculation for part b and assuming that the equity portion of your portfolio is divided equally between large and small companies, what is the expected return for the total equity portfolio?