Problem 13-31 There are two stocks in the market, stock A and stock B. Below are expected return for stock A at different state of economy State Recession Normal Expanding Probability 0.2 0,6 0.2 Return -18.46% 12.31% 30.77% Stock A has beta of 0.68. Stock B has an expected return of 13%, a standard deviation of 34%, a beta of 0.45, and a correlation with stock A of 0.48. The market portfolio has a standard deviation of 14%. Assume the CAPM holds. a. What are the expected return and standard deviation of stock A? b. If you are a typical, risk-averse investor with a well-diversified portfolio, which stock would you prefer? c. What are the expected return and standard deviation of a portfolio consisting of 60% of stock A and 40% of stock B? d. What is the beta of the portfolio in (c)? Iman