You have recently graduated as a major in finance and have been hired as a financial planner by Radiant Securities, a financial services company. Your boss has assigned you the task of investing Rs 1,000,000 for a client who has a 1-year investment horizon. You have been asked to consider only the following investment alternatives: T-bills, stock A, stock B, stock C, and market index.

The economics cell of Radiant Securities has developed the probability distribution for the state of the economy and the equity researchers of Radiant Securities have estimated the rates of return under each state of the economy. You have gathered the following information from them:

Returns on Alternative Investment
State of the Economy	Probability	T-Bills	Stock A	Stock B	Stock C	Market Portfolio
Recession Normal Boom	0.2 0.5 0.3	6.0% 6.0 6.0	(15.0%) 20.0 40.0	30.0% 5.0 (15.0)	(5.0%) 15.0 25.0	(10.0) 16.0 30.0

Your client is a very curious investor who has heard a lot relating to portfolio theory and asset pricing theory. He requests you to answer the following questions:

What is the expected return and standard deviation on a portfolio in which stocks A and B are equally weighted? In which the weights assigned to stocks A, B, and C are 0.4, 0.4, and 0.2 respectively?