Question 2. (Total marks: 30) a) State of the economy Bear Normal Bull Return on stock Return on A stock B -4% 1% 5% 4% 20% 7% Calculate the expected return and standard deviation of each of the following stocks. Assume each state of the economy is equally likely to happen. (15 marks) b) After graduating from King's Business School, Lewis received two job offers: one from JPMorgan and one from McKinsey & Co. The starting salary at JPMorgan is 35,000 per year and it will grow 5% every year. In contrast, the starting salary at McKinsey & Co. is 70,000 per year but it will stay constant for the rest of his career. The discount rate is 7%. Lewis is expected to work for 40 years. What is the present value of JPMorgan's salary? How about McKinsey & Co's? Which job offer Lewis should take if salary is the only factor to consider? (15 marks)