Question 1 [45 marks] You are given the following information: Compute: a. Find the expected return on stocks A, B and the market index. [4+4+4 Marks] b. Find the Standard Deviation of returns on stocks A, B and the market index. [5+5+5 marks] c. If you create a portfolio with 50% investment on Stock A and 50% on Stock B, what is the expected return and standard deviation of your portfolio? [5 + 5 marks] d. Find the beta of stocks A and B. [4+4 marks]

State of Economy Probability Return on Stock A (%) Return on Stock B (%) Return on Market Index (%) Boom 0.3 20 -5 15 Normal 0.4 10 10 5 Recession 0.3 -10 20 -5