The capital structure of MSL consists of bonds, preferred shares, and common shares. MSL has outstanding debt with $120 million face value. The debt matures in 15 years and the annual dividend rate is 8% paid in two semi-annual instalments. The market value of the debt is $104.457 per $100 face value. MSL's corporate tax rate is 35%. MSL has 2.2 million out

You have $40,000 to invest and you wish to divide this amount between three securities: $14,000 in the shares of Firm A, $18,000 in the shares of Firm B, and the remaining part in the risk free asset. You collected the following information: . .J Return if the state occurs .: State of the Probability of Share A .: Share B .: Risk-free asset: Ination rate .: economy .: occurrence .: Boom .: 0.20 .: 0.25 .: 0.40 .: 0.06 .: 0.04 .: Normal 0.50.: 0.21.: 0.17.: 0.05 .: 0.025 .: Busto 0.30.: 0.08.: 0.20.: 0.04.: 0.02.: What is the expected return on the portfolio? (7 marks) . What is the standard deviation of the return? (5 marks) . .J . . . an I + What IS the expected risk premium on the portfoMarks) H .J What is the expected real return on the portfolio? (3 marks) Hint: Real return = Return Ination