a) Calculate the expected return for each stock based on these forecasts and report your results.

b) Suppose that you decide to invest $40,000 in stock A and $160,000 in stock B. Find the expected return and standard deviation of the portfolio.

c) Assume that stock A has beta = 1.5 and stock B has beta=1.1. Further, the expected return on the market is 12% and the risk free is 1.5%. Calculate the expected return for both stocks if they were correctly priced (i.e., using the CAPM).

Suppose that you are considering investing in two stocks for one year: Stock A and Stock B. The current price of stock A is $60 and analysts forecast a price of $80 in one year if the economy is booming, or $50 if the economy enters a recession. The current price of Stock B is $30 and analysts forecasts a price of $36 in one year if the economy is booming and a price of $32 if the economy is in a recession. You believe that the probabilities of a recession is 40% and boom is 60%. Stocks A and B do not pay dividends. (*** SHOW your work for partial credit. Please copy the cells from a spreadsheet and paste them into the box, OR type in your calculations directly. DO NOT upload pictures of your spreadsheet or your notes. Emailing them *does not count for partial credit.)