Use the following information to answer questions 1 through 4:

Your portfolio is comprised of $4,000 in stock K and $5,000 in stock L.

State of Economy	Probability of State of Economy	Returns if State Occurs
		Stock K	Stock L
Boom	20%	14%	10%
Normal	80%	5%	6%

1. What is the expected return for Stock K?

2. What is the return in a Boom economy for a portfolio of the two stocks?

3. What is the expected return for a portfolio of the two stocks?

4. What is the variance of return for a portfolio of the two stocks?

5. Your portfolio is comprised of 50 percent of stock X, 20 percent of stock Y, and 30 percent of stock Z. Stock X has a beta of 0.64, stock Y has a beta of 1.48 and stock Z has a beta of 1.04. What is the beta of your portfolio?

6. You observe a portfolio for five years and determine that its average return is 12% and the standard deviation of its returns is 20%. Can you be 95% confident that this portfolio will not lose more than 30% of its value next year? EXPLAIN YOUR ANSWER