1. You've just decided upon your capital allocation for the next year, when you realize that you've underestimated both the expected return and the standard deviation of your risky portfolio by 4%, will you increase, decrease, or leave unchanged your allocation to risk free T-bills? 2. Look at Table 5.2 in the text. Suppose you now revise your expectations regarding the stock market as follows: State of the Economy Probability HPR Boom 0.3 44% Normal growth 0.4 14 Recession 0.3 -16 Use Equations 5.6 - 5.8 to compute the mean and standard deviation of the HPR on stocks. 3. The stock of Business Adventures sells for $40 a share. Its likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows: Dividend Stock Price Boom (Bull) $2.00 $50 Normal economy 43 Recession (Bear) 50 34 1.00 a. Calculate the expected holding-period return and standard deviation of the holding period return. All three scenarios are equally likely. b. Calculate the expected return and standard deviation of a portfolio invested half in Business Adventures and half in Treasury bills. The return on bills is 4%