1. A portfolio has two assets; A & B. Asset A has an expected return of 5% and a standard deviation of return of 2%. Asset B, on the other hand, has an expected return of 12% and a standard deviation of return of 5%. The covariance of return is 7.5(%)2. (10 pts) What are the portfolios expected return and standard deviation, if 50% of the portfolio is in asset A?

2. The risk-free interest rate is 5% and the Unilevers beta coefficient is 1.5. If the market risk premium is 6%, what is the required return on Unilevers stock?

3. What is the expected return and standard deviation of return of the following stock?

State |Probability| Return|

Good | 30% | 50% |

Bad | 70% | 1% |