There are two states of the world tomorrow. With probability 1/5, the economy will be good. With probability 4/5, the economy will be bad. IBM stock return will be 15% if the economy is good, -5% if the economy is bad. Dell stock return will be 20% if the economy is good, 10% if the economy is bad. You own $1,500 of IBM and $1,500 of Dell.

a. What is the expected return of your portfolio?

b. What are

the covariance of IBM and Dell stock returns?

c. What is

the variance of your portfolio?