1. Based on the following data; calculate the expected return and the standard deviation of returns for each stock.

State of the Economy Probability Stock A Rate of Return Stock B Rate of Return

Recession 0.25 6% -20%

Normal Growth 0.45 7% 13%

Boom 0.3 11% 33%

2. Based on the following data; (a) calculate the expected return and the standard deviation of returns for each stock.

State of the Economy Probability Stock A Rate of Return Stock B Rate of Return

Recession 0.2 4% -20%

Normal Growth 0.65 8% 20%

Boom 0.15 16% 60%

(b) Calculate the expected return and the standard deviation on the portfolio, where

the portfolio is formed by investing 50% of the funds in Stock A and the rest in Stock B.