ANSWER #5 NO EXCEL The return for two companies, Alpha and Beta, depends on the strength of the economy.

Economy Probability Alpha Return Beta Return

strong 0.3 12% 5%

normal 0.5 6% 8%

weak 0.2 2% 10%

3. What is the expected return for Alpha? 7 percent

4. What is the expected return for Beta? 7.5%

5. Use your answers for questions 3 and 4 to determine the expected return of a portfolio that invests 75% in Alpha and 25% in Beta.

That expected return is 4.25% 7.125% 8.375% 9.25%