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State of Economy Probability of State of Economy Return of Stock A if State Occurs Return of Stock B if State Occurs Recession 0.30 -0.10

State of Economy

Probability of State of Economy

Return of Stock A if State Occurs

Return of Stock B if State Occurs

Recession

0.30

-0.10

0.08

Normal

?

0.20

0.15

Boom

0.20

0.30

0.20

1. Suppose you have $100,000 total. If you put $30,000 in Stock A and the remainder in Stock B, what are the portfolio returns in each state?

2. Suppose you have $100,000 total. If you put $30,000 in Stock A and the remainder in Stock B, what will be the expected return of your portfolio?

3. Suppose you have $100,000 total. If you put $30,000 in Stock A and the remainder in Stock B, what will be the standard deviation of your portfolio?

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