Two stocks, Alpha and Omega, are listed on the Singapore Stock Exchange (SGX). The price of the Alpha today is $50. The price of Alpha next year will be $40 if the economy is in a recession, $55 if the economy is normal, and $60 if the economy is expanding. The probabilities of recession, normal times, and expansion are 0.1, 0.8, and 0.1, respectively. Alpha pays no dividends and has a correlation of 0.8 with the market portfolio. Omega has an expected return of 9 percent, a standard deviation of 12 percent, a correlation with the market portfolio of 0.2 and a correlation with Alpha of 0.6. The market portfolio has a standard deviation of 10 percent. Assume CAPM holds. Required: (a) What are the expected return and standard deviation of a portfolio consisting of 70 percent of Alpha and 30 percent of Omega? (10 marks) (b) If you are a typical risk-averse investor with a well-diversified portfolio which stock would you prefer? Justify your answer. (5 marks) (c) What are your main considerations if you would like to include additional stocks in your portfolio? Explain. (5 marks) (d) You believe that stock market is efficient incorporating, and investors are not able to generate abnormal return from the market. Explain your possible strategies based on your belief. (5 marks) (Total: 25 marks)