Question 3 1. Consider the following investment options along with the designated probability distribution of returns for each: (8 marks) T-Bill Stock A Stock B 4.5% 30% Economic state Probability of occurrence Very poor 0.1 Poor Average 0.4 Good 0.2 Very good 0.1 (15)% 5% 0.2 4.5% 20% 4.5% 10% 17% 4.5% 0% 20% 4.5% (10)% 35% The return on average stock in the market is 7%. Risk-free rate is 4.5%. a) Construct a portfolio of stocks with 50% of funds invested in stock A and the remainder in stock B. Calculate this portfolio's standard deviation. b) What is the portfolio's required rate of return? Beta of stock B is 1.15