2.

(part a). You have a portfolio consisting solely of Stock A and Stock B. The portfolio has an expected return of 10.6 percent. Stock A has an expected return of 12.4 percent while Stock B is expected to return 6.6 percent. What is the portfolio weight of Stock A? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

(part b) The risk-free rate of return is 2.9 percent, the inflation rate is 3.1 percent, and the market risk premium is 4.9 percent. What is the expected rate of return on a stock with a beta of 0.61? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

(part c) The returns on the common stock of New Image Products are quite cyclical. In a boom economy, the stock is expected to return 18 percent in comparison to 9 percent in a normal economy and a negative 11 percent in a recessionary period. The probability of a recession is 15 percent while the probability of a boom is 25 percent. What is the standard deviation of the returns on this stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)