Suppose you have predicted the following returns for stocks A and B in three possible states of the economy. Stock Stock State Probability B Boom 0.3 15 25 Normal 0.4 10 20 Recession? 2 1 a. What is the expected return for stock A? Answer: 9.1 b. What is the expected return of stock B? Answer: 15.8 Question 10 Answer saved Marked out of 1 You recently purchased a stock that is expected to earn 22 percent in a booming economy, 9 percent in a normal economy, and lose 10 percent in a recessionary economy. There is a 5 percent probability of a boom and a 65 percent chance of a normal economy. What is your expected rate of return on this stock? P Flag question Answer: 0.05 Question 11 Answer saved You would like to combine a risky stock with a beta of 1.68 with U.S. Treasury bills in such a way that the risk level of the portfolio is equivalent to the risk level of the overall market. What percentage of the portfolio should be invested in the risky stock? Marked out of 1 P Flag question Select one: O a. 68% b. 60% O c.32% O d. 40% Clear my choice