The following data provide three possible scenarios for the stock market next year, their associated probabilities, and the corresponding returns for three stocks (Note: these are unrealistic values but they are designed to give you realistic answers):

Scenario	Probability	Stock A Return	Stock B Return
Cold Market	70%	8.895%	-5.082%
Hot Market	30%	34.916%	1.447%

Calculate the expected return and standard deviation for stocks A & B. If you do this in Excel, show every step in your print-out. The following data show the Expected Return and the Variance-Covariance Matrix for Google, Exxon, and Walmart based on historical data.

	GOOG	XOM	WMT
GOOG	0.0498797	0.0104403	0.00816570
XOM	0.0104403	0.0293534	0.0067355
WMT	0.00816570	0.00673550	0.0269499

Expected Return

0.2352

0.01997

0.05665

1. Consider GOOG & XOM. Suppose you invest a fraction X1 of your wealth in GOOG and X2 in XOM.

a. Write down the expression showing the expected return and standard deviation of the resultant portfolio in terms of X1 alone. Show your work. b. Develop a table in Excel showing different values of expected return and standard deviation as you change X1 from 0% to 100% in steps of 1%. 2. Do the same for GOOG & WMT 3. Do the same for XOM & WMT. 4. At this point you should have three tables. Make a plot with Standard Deviation on the horizontal axis and Expected Return on the vertical axis and plot the three graphs. It should look something like this:

Looks nice, doesnt it? 5. Now suppose you invest equally in all three stocks at the same time. What is the expected return and the standard deviation? Do this manually and show your work (if this takes you more than 5-6 minutes, youre either overthinking it or doing something wrong). 6. Compare the result you got above with your Excel plot. For this level of risk, would you follow the equal-investment strategy? Or would you invest in one of the three portfolios that involved two stocks at a time? Explain. Note: When you print from Excel for this question, include the entire figure and small parts of each of the three tables.