You have done your research for the following investments and your friend has provided their expectations for the markets for next year.

State of Economy	Probability of State of Economy	Stock A	Stock B	TSX
Boom	.30	30%	-9%	18%
Normal	.40	16%	12%	10%
Recession	.30	-10%	20%	-10%

* Remember to show all of your work *

a.Calculate the expected return for stock A.

b.Calculate the expected return for stock B.

c.Calculate the expected return for the TSX.

d.Calculate the risk for stock A.

e.Calculate the risk for stock B.

f.Calculate the risk for the TSX.

g.Calculate the covariance and correlation of the returns for stock A and stock B.

h.Calculate the covariance and correlation of the returns for stock A and the TSX.

i.Calculate the covariance and correlation of the returns for stock B and the TSX.

j.Calculate the beta of Stock A.

k.Calculate the beta of stock B.

l.Calculate the beta for the TSX.

m.Using an excel spreadsheet and the calculations you have done above, prepare a spread sheet that provides the expected returns and the risk for a portfolio that invests in stock A and stock B. Prepare the calculations using 4% increments in the weights.

n.Using the excel spreadsheet and the information from part m, create a graph of your results.

o.You have $10,000 to invest and would like to create a portfolio that has an expected return of 15 percent. How much will you need to invest in stock A and stock B and what is the risk that is associated with this portfolio?