Question 1

Consider the two assets A and B for which returns (%) under different conditions of economy are given as below.

		Returns (%)
State of the Economy	Probability	Stock A	Stock B
Recession	0.1	-18	-10
Above Average	0.2	-4	2
Average	0.4	12	8
Below Average	0.2	24	12
Boom	0.1	30	18

1. Find the expected return of each asset
2. Find the risk (as measured by standard deviation of return) of each asset
3. If an investor decides to invest $48,000 in stock A and $32,000 in stock B, calculate the expected returns of the investors portfolio of stocks A and B.
4. Using the information, calculate the portfolios standard deviation if the correlation of the returns between stocks A and B returns is -0.52.