Question 1 You are given the following information on forecasted returns: Returns State of Economy Probability Asset Class A Asset Class B Boom 0.3 10% 20% Normal Recession 0.3 12% 17% 0.4 -4% -8% You would like to construct a portfolio with 30% invested in asset class A and the rest invested in asset class B. (a) Compute the expected return for each of the asset classes. (6 marks) (b) Calculate the portfolio return for each state and, hence, the portfolio expected return. (c) (d) (9 marks) Using your answers to part (a) and the portfolio weights, calculate a weighted- average of the asset class returns. (2 marks) Compare your answers to parts (b) and (c) and explain what the comparison shows. (3 marks)