Question: Please provide specific equations and explanations. NO EXCEL!!! I need specific equations. You are comparing stock A to stock B. Consider the following table: State

Please provide specific equations and explanations. NO EXCEL!!! I need specific equations.

You are comparing stock A to stock B. Consider the following table:

State of Economy

Probability of State of Economy

Rate of Return if State Occurs

Stock A

Stock B

Boom

60%

15%

9%

Normal

30%

8%

4%

Recession

10%

-2%

-5%

(a) What is the expected return of a portfolio which is comprised of $20,000 invested in stock A and $5,000 in stock B?

(b) What is the standard deviation of a portfolio which is comprised of $20,000 invested in stock A and $5,000 in stock B?

(c) Which one of these two stocks has a greater systematic risk? Assume that the expected return on the market portfolio is 7% and T-bills yield 2%..

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