Do Problem 7 and Problem 13 on page 383 with the following modifications for problem 7.

1. Assume probability of state of economy to be equal, that is 1/3 for each state of economy.

2. Construct an equally weighted portfolio of Stock A and Stock B (50% of Stock A and 50% of Stock B). Determine the expected return and standard deviation of such a portfolio.

3. Compare the standard deviation of this portfolio to the average standard deviation of Stock A and Stock B. Which is lower? Explain.

4. Assume return on Stock A has a correlation coefficient of 0.70 with the market portfolio, S&P500, and return on Stock B has a correlation coefficient of 0.45 with the market portfolio, S&P500, and that the return of S&P 500 has a standard deviation of 25%. Determine the beta of Stock A and the beta of Stock B.

Would it be possible to show excel formulas for each question in an excel worksheet? Thank you!

LO 1 7. Calculating Returns and Standard Deviations Based on the following information, calculate the expected returns and standard deviations for the two stocks. State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B -.30 Recession Normal Boom .10 .50 .40 .02 .10 .15 .18 .31 LO 4 13. Using CAPM A stock has a beta of 1.14, the expected return on the market is 10.9 percent, and the risk-free rate is 3.6 percent. What must the expected return on this stock be