10 MS eBook Problem 13-31 Using CAPM (L01, 4) There are two stocks in the market, stock A and stock B. The price of stock A today is $67. The price of stock A next year will be $55 if the economy is in a recession, $75 if the economy is normal, and $87 ifthe economy is expanding. The probabilities of recession, normal times, and expansion are 0.2, 0.6, and 0.2, respectively. Stock A pays no dividends and has a beta of 0.70. Stock B has an expected return of 13%, a standard deviation of 34%, a beta of 0.47, and a correlation with stock A of 0.48. The market portfolio has a standard deviation of 14%. Assume the CAPM holds. a. What are the expected return and standard deviation of stock A? (Do not round intermediate calculations. Round the final answers to 2 decimal places.) Stock A Expected return 96 Standard deviation 96 b. lfyou are a typical, riskaverse investor with a welldiversified portfolio, which stock would you prefer? 0 Stock A 0 Stock B c. What are the expected return and standard deviation of a portfolio consisting of 45% of stock A and 55% of stock B? (Do not round intermediate calculations. Round the final answers to 2 decimal places.) Expected return 95 Standard deviation 95 d. What is the beta of the portfolio in (c)? (Do not round intermediate calculations. Round the final answer to 3 decimal places.) Beta ofthe portfolio