part A

Part B

Suppose your expectations regarding the stock market are as follows: State of the Economy Boom Normal growth Recession Probability 3.2 0.4 3.4 HPR 43% 14 -17 E) (5)76 Var(-) = 0 = p(s)[r() - E() SD() = 0 = V Var (7) Use above equations to compute the mean and standard deviation of the HPR on stocks. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Mean Standard deviation % 9 You manage an equity fund with an expected risk premium of 13% and a standard deviation of 44%. The rate on Treasury bills is 6.6%. Your client chooses to invest $90,000 of her portfolio in your equity fund and $60,000 in a T-bill money market fund. What is the expected return and standard deviation of return on your client's portfollo? (Round your answers to 2 decimal places.) % Expected Return Standard Deviation