Below are the expected returns from both stocks based on the probability of economic conditions. It is desired to create a portfolio from two stocks. It is decided to invest 30% in stock A and 70% in stock B.

		Stock A
State (i)	p(i)	E(R)
Recession	0.50	-40%
Neutral	0.40	15%
Boom	0.10	30%
	1.00
		Stock B
State (i)	p(i)	E(R)
Recession	0.5	40%
Neutral	0.40	15%
Boom	0.1	-20%
	1.00

1. Compute the expected return and standard deviation of each stock? (10 points)
2. Find the covariance of stocks A and B? (10 points)
3. Find the correlation coefficient between stocks A and B? (10 points)
4. Find the expected return and standard deviation of this portfolio? (10 points)
5. If you were a portfolio manager, what type of investors do you recommend this portfolio and why? (10 points)
6. Explain why the beta of the market is always equal to 1 and beta of a treasury bill equal to 0. (10 points)

Financial modeling