QUESTION 2

The probability distributions of returns for Stock A and Stock B are given below:

State of Economy	Probability	Stock A	Stock B
Bull	0.3	20%	5%
Bear	0.7	12%	10%

REQUIRED

a. Calculate the expected returns for Stock A and Stock B.

b. Calculate the variances of returns for Stock A and Stock B.

c. Calculate the correlation of Stock A with Stock B.

d. Based on the correlation obtained in part (c), calculate the expected return and standard deviation of the minimum variance portfolio.