Question: a) Consider the following two stocks. Probabilities ( pi pi ) Stock a Stock b Recession p1= p1= 29% -4% 3% Normal p2= p2= 32%

a) Consider the following two stocks.

	Probabilities (pipi )	Stock "a"	Stock "b"
Recession	p1=p1= 29%	-4%	3%
Normal	p2=p2= 32%	6%	-12%
Boom	p3=p3= 39%	18%	24%

What is the expected return of each stock? Enter your answers as a percentage rounded to 2 decimal places. Do not enter the percentage sign in your answer.

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b) Consider a portfolio that contains two stocks. Stock "A" has an expected return of 30% and a standard deviation of 49%. Stock "B" has an expected return of -8% and a standard deviation of 28%. The proportion of your wealth invested in stock "A" is 25%. The correlation between the two stocks is 1.

What is the expected return of the portfolio? Enter your answer as a percentage. Do not include the percentage sign in your answer.

Enter your response rounded to 2 DECIMAL PLACES.

What is the standard deviation of the portfolio? Enter your answer as a percentage. Do not include the percentage sign in your answer.

Enter your response rounded to 2 DECIMAL PLACES.

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