There two stocks in the market, stock A and stock A. The price of stock A today is Ghc75. The price of stock A next year will be Ghc 64 if the economy is in a recession, Ghc87 if the economy is normal, and Ghc97 if the economy is expanding. The probability of recession, normal times and expansion are 0.2, 0.6 and 0.2, respectively. Stock A pays no dividends and has a correlation of 0.7 with the market portfolio. Stock B has an expected return of 14% , a standard deviation of 34%, a correlation with the market portfolio of 0.24, and a correlation with stock A of 0.36. The market portfolio has standard deviation of 18%. Assume the CAPM holds. a) if you are a typical, risk-averse investor with a well -diversified portfolio, which stock would you prefer? why?

b) what are the expected return and standard deviation of a portfolio consisting of 70 percent of Stock A and 30 percent of stock B? c.) what is the beta of the portfolio in part (b) ?