Rate of return if state occurs
State of economy	Probability of state of economy	Stock A	Stock B	Stock C
Boom	0.3	0.35	0.45	0.38
Good	0.3	0.15	0.20	0.12
Poor	0.3	0.05	0.10	0.05
Bust	0.1	0.00	0.30	0.10

5. Consider the following information on three stocks in four possible future states of the economy: (8 marks)

1. Your portfolio is invested 30% in A, 50% in B, and 20% in C. What is the expected return of your portfolio? (5 marks)
2. What is the variance of this portfolio? (2 marks)
3. What is the standard deviation of this portfolio? (1 mark)

Just For Fun (JFF):

See if you can find the optimal portfolio using the Solver function in MS Excel. To optimize the portfolio, you would want to find the optimal portfolio weights that will minimize the portfolio risk (standard deviation) while achieving a required rate of return (say, 15%). No marks are assigned for this problem, as it is JFF.