Use the following expectations about the stock market for the next 2 questions, 3 and 4.

State of the Economy	Probability	HPR
Boom	0.30	44%
Normal growth	0.40	14
Recession	0.30	-16

*3. What is the expected return, E(R), and standard deviation, S.D., for stocks?

E(R)

S.D.

a) 17.33% 17.33%

b) 14.00% 23.24%

c) 14.00% 21.21%

d) 17.33% 14%

*4. Assume you have a $10,000 portfolio with $9,000 in stocks and $1,000 in T-bills that return 4%. What is the expected return and standard of your portfolio?

E(R)

S.D.

a) 16.00% 23.24%

b) 13.00% 19.09%

c) 16.00% 16.00%

d) 13.00% 20.92%