States of the Economy and Stock Returns Probability of State of Economy State of Economy Recession Boom Security Returns if State Occurs Starcents Jpod -20% 30% 70 10 1.00 Takehome #7: individual securities' expected return and standard deviation Suppose you thought a boom state would occur 20 percent of the time (So Recession probability = 1.00 -0.20 -0.80.). Suppose risk-free rate - 8% Takehome #8: portfolio's expected return and standard deviation . Using the above two securities' Information, you are forming a portfolio . Suppose you invest 30% into Starcents and 70% into pods 1.What is the expected return of this portfolio? 2. What is the standard deviation of this portfolio