You want to create a $72,000 portfolio comprised of two stocks plus a risk-free security. Stock A has an expected return of 13.6 percent and Stock B has an expected return of 14.7 percent. You want to own $25,000 of Stock B. The risk-free rate is 3.6 percent and the expected return on the market is 12 percent. If you want the portfolio to have an expected return equal to that of the market, how much should you invest in the risk-free security?

• A. $12,550
• B. $13,550
• C. $11,370
• D. $14,270
• E. $12,950

If the economy is normal, Chadron Motors stock is expected to return 14.3 percent. If the economy falls into a recession, the stock's return is projected at a negative 7.22 percent. The probability of a normal economy is 80 percent. What is the variance of the returns on this stock?

• A. .100346
• B. .094315
• C. .073927
• D. .007410
• E. .008464