QUESTION FOUR State Probability Stock A Stock B Recession 0.6 20 35 Normal 0.2 17 Boom 0.2 A. Compute the risk and return of the above two stocks. (6 Marks) B. Justify using your answers in part A as well as any other empirical computation which of the two stocks you prefer. (2 Marks) C. Given a Risk Free Rate (RFR) of 15%, draw the Security Market Line (SML) clearly plotting the two stocks. (4 Marks) D. Compute the Covariance (COVAB) of the above two stocks and interpret your computation. (3 Marks) E. Compute the Correlation coefficient (CAB) of the above two stocks and interpret your computation. (3 Marks) F. Show the effect on your SML drawn in part C if investors become more risk averse. (2 Marks) [TOTAL: 20 MARKS]