Question: Please show your work Given the following probability distributions for Stocks A and B, and the market portfolio, M: State Probability Return on A Return

Please show your work Given the following probability distributions for Stocks

Please show your work

Given the following probability distributions for Stocks A and B, and the market portfolio, M: State Probability Return on A Return on B Return on M Bust 015 -015 0.00 -0.12 Normal 0.50 0.12 0.06 0.08 Boom 0.35 0.20 0.10 0.16 You construct a 2-stock portfolio by investing $9,000 in Stock A and $6,000 in Stock B. (a) Compute the expected rate of return, beta, and standard deviation of the 2-stock portfolio. given that Stock A has a beta of 1.61 and Stock B has a beta of 0.36. (b) Compute the required (CAPM) rate of return on the 2-stock portfolio, and explain your investment recommendation on this 2-stock portfolio according to the CAPM analysis, given that the risk-free rate and the inflation rate are, respectively, 0.015 and 0.020

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