You have two investment option: Common stocks of ACAR Co or STAR Co. The expectation of market about them are given below:

ACAR Co:

Economy Probability Expected Return

Recession 0,30 - 0,15

Normal 0,40 0,15

Good 0,30 0,25

STAR Co

Economy Probability Expected Return

Recession 0,25 - 0,20

Normal 0,50 0,10

Good 0,25 0,30

a- Which one do you prefer?

b- If you invest 40% of your money to ACAR and %60 percent to STAR common stocks , what will be risk and expected return of the new portfolio (? Please note that the correlation coefficient between the return of these companies are 0,33.