The returns on shares of Laverne Corporation and Shirley Corporation are predicted under the following various economic conditions:

State of Economy Return on Laverne Return on Shirley

Recession -20% -30%

Stagnant +0% -5%

Moderate Growth +10% +10%

Boom +30% +65%

Each economic state has a 25% probability of occurring.

What are the expected returns of each stock? What are the variances of each stock? What are the standard deviatiions of each stock?

• Also solve the problem for a portfolio of both stocks, with 25% invested in Laverne and 75% invested in Shirley