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Suppose you observe the following situation: state of economy probability stock A return stock B return bust .3 -.1 -.05 normal .5 .1 .05 boom
Suppose you observe the following situation:
| state of economy | probability | stock A return | stock B return |
| bust | .3 | -.1 | -.05 |
| normal | .5 | .1 | .05 |
| boom | .2 | .25 | .2 |
1. You own a portfolio that has $2000 invested in Stock A and $8000 invested in Stock B. What is the expected return of the portfolio?
2. What is the standard deviation of the portfolio (above)?
3. What is the correlation between the two stocks?
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