Problem 1 Using the information in the table below, answer the questions in the problem Probabilit Taux de Taux de associee a rendement rendement chaque etat du titre A du titre B Periode de 03 -15% 20% recession Period 0.1 20% 30% normale Periode de 60% 40% prosperite 1. What are the expected returns and standard deviations of stocks A and B? 2. Suppose you have a total of $400,000. If you invest $100,000 in security B and the B and the rest in A. a) What would be the expected return on the portfolio? b) Determine the standard deviation of the portfolio. Problem 2 You observe the following situation Titre Coefficient beta Rendement espere AJF 1,8 21% DER 1,6 28% 1) If the risk-free rate is 7%, are these securities fairly valued? 2) Assume that the risk-free rate is 8% and the expected market return is 16%. If a particular stock has a beta of 0.7, what return can we expect from it according to the capital asset pricing model? 3) If another stock has an expected return of 24%, what should its beta be? Problem 3 1. Why are some risks diversifiable and why are others not? 2. Can an investor control the level of systematic risk? 3. What does the beta coefficient measure? 4. How do you calculate the beta of a portfolio? 5. Suppose the government announces that the economy is likely to grow by 2% next year compared to 5% growth this year. Will stock prices increase, decrease or stay the same after this government announcement? 6. In recent years, companies have often experienced significant changes in their stock prices, particularly following announcements of massive layoffs. Critics have often argued that such events encourage companies to lay off older employees and that large financial firms encourage them. Do you agree or disagree? Justify your