Question 3: Suppose that you form a portfolio by investing $1000 in three stocks. You estimated the following probability distribution of returns and calculated expected return, standard deviation, and beta of each stock as follows: States 1 Probability 0.30 2 0.20 Stock A -10% 0 % 10% 20% Stock B 10 % 10% 5 % -10% Stock C 0% 10% 15 % 5% 3 0.30 0.20 4 Expected Return Standard Deviation Beta Amount invested 4% 11.14 % 0.6 $200 4.5 % 7.57% 0.4 $500 7.5 % 6.02 % 1.5 $300 a. Calculate the portfolio's expected rate of return. b. Calculate the portfolio's standard deviation. c. What is the beta of your portfolio? d. If the risk-free rate of return and market risk premium is 3 percent, what is the required rate of return on your portfolio? e. Given the information on part d, will you change the composition of your portfolio? If you decide to change it, explain why. (Hint. Decide whether any stock in your portfolio is over- or undervalued.)