Question: 3. Risk and returns (10 points] Probability 0.1 0.8 0.1 Return of Stock A (%) 3 10 20 Return of Stock B (%) -35 18

3. Risk and returns (10 points] Probability 0.1 0.8 0.1 Return of Stock A (%) 3 10 20 Return of Stock B (%) -35 18 47 a. Calculate expected return of the portfolio with 80% investment in stock A and 20% investment in stock B b. Calculate CAPM returns for stock C and D given that risk-free rate is 2 percent and risk premium is 6 percent. Stock C's beta is 0.9 and stock D's beta is 1.5

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