You are comparing Stock A to Stock B. Stock A will return 9 percent in a boom and 4 percent in a recession. Stock B will return 15 percent in a boom and lose 6 percent in a recession. The probability of a boom is 60 percent with a 40 percent chance of a recession. Given this information, which one of these two stocks should you prefer and why? Stock A; because it has a higher expected return and appears to be more risky than Stock B Stock A; because it has a higher expected return and appears to be less risky than Stock B Stock A; because it has a slightly lower expected return but appears to be significantly less risky than Stock B Stock B; because it has a higher expected return and appears to be just slightly more risky than Stock A Stock B; because it has a higher expected return and appears to be less risky than Stock A

Stock A has an expected return of 17.8 percent, and Stock B has an expected return of 9.6 percent. However, the risk of Stock A as measured by its variance is 3 times that of Stock B. If the two stocks are combined equally in a portfolio, what would be the portfolio's expected return?

13.37%

13.70%

15.75%

12.41%

14.55%