There are two stocks in the market, Stock A and Stock B. The price of Stock A today is $76. The price of Stock A next year will be $65 if the economy is in a recession, $88 if the economy is normal, and $98 if the economy is expanding. The probabilities of recession, normal times, and expansion are .21, .59, and .20, respectively. Stock A pays no dividends and has a correlation of .71 with the market portfolio. Stock B has an expected return of 14.1 percent, a standard deviation of 34.1 percent, a correlation with the market portfolio of .25, and a correlation with Stock A of .37. The market portfolio has a standard deviation of 18.1 percent. Assume the CAPM holds.

a-1.	What is the return for each state of the economy for Stock A? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
a-2.	What is the expected return of Stock A? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

a-3.	What is the variance of Stock A? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., .1616.)

a-4.	What is the standard deviation of Stock A? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

a-5.	What is the beta of Stock A? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)

a-6.	What is the beta of Stock B? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)

If you are a typical, risk-averse investor with a well-diversified portfolio, which stock would you prefer?

multiple choice

Stock A

Stock B

b-1.	What is the expected return of a portfolio consisting of 75 percent of Stock A and 25 percent of Stock B? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

b-2.	What is the standard deviation of a portfolio consisting of 75 percent of Stock A and 25 percent of Stock B? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

c.	What is the beta of the portfolio in part (b)? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)