You have $10,000 available to invest in two stocks, and their expected returns in the different states of the economy are displayed below:

State	Probability	A	B
Boom	0.05	25%	10%
Normal	0.5	11%	9%
Recession	0.45	-15%	8%

You are looking to invest $5,500 in A and the rest in B. The risk-free rate is 3.00%.

(a)What is the Sharpe ratio of A, B and the resulting portfolio? (10 marks)

(b)You decided to borrow $3,000 at the risk-free rate to invest in the portfolio, what is the eventual expected return and standard deviation of this new portfolio? (3 marks)

(c)How will you change the allocation of A and B to achieve the highest Sharpe ratio? (2marks)