There are two stocks in the market, Stock A and Stock B . The price of Stock A today is $72. The price of Stock A next year will be $61 if the economy is in a recession, $84 if the economy is normal, and $94 if the economy is expanding. The probabilities of recession, normal times, and expansion are .17, .63, and .20, respectively. Stock A pays no dividends and has a correlation of .67 with the market portfolio. Stock B has an expected return of 13.7 percent, a standard deviation of 33.7 percent, a correlation with the market portfolio of .21, and a correlation with Stock A of .33. The market portfolio has a standard deviation of 17.7 percent. Assume the CAPM holds.

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.)

Expected return

%

b-2.	What is 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 answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Standard deviation

%

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.)

Beta of the portfolio