The following describes the probability distribution of future returns for 2 stocks:

State of the Probability Return on Return on

Economy of the State Stock A Stock B

Boom 0.25 21% 8%

Normal 0.65 7% 10%

Depression 0.10 -6% 12%

Beta 1.62 1.06

a) Compute the expected return and the standard deviation of the returns for both stocks.

b) Compute the expected return, standard deviation, and beta of a portfolio consisting of 25% stock A and 75% stock B.