Suppose you estimate the following returns (per $1000.00 investment) under three economic conditions, each with a given probability of occurrence. Consider the following information regarding investment opportunities.

Investment Opportunities

P(XiYi). Economic Condition Dow Jones Fund Growth Stock

.2 Recession -100 -200

.4 Stable Economy 100 50

.4 Expanding Economy 250 350

Compute:

a) The expected value and standard deviation for each investment.

b) Suppose you decided to invest (20%) of your funds in the Dow Jones Fund and the rest in the other,calculate the portfolio's expected return.

c) Define portfolio risk as the square root of the variance of the portfolio.Calculate the risk.