Question: State ProbabilityAB Boom 0.6 20% -5% Bust 0.4-10% 10% a.What are the expected return and standard deviation of stock A? b.What are the expected return

State ProbabilityAB

Boom 0.6 20% -5%

Bust 0.4-10% 10%

a.What are the expected return and standard deviation of stock A?

b.What are the expected return and standard deviation of stock B?

c.If you invest 50% of your money in stock A and 50% of your money in stock B, what are the expected return and standard deviation for the portfolio as a whole (considering both states of the economy)?

d.Use the results of a-c to explain the benefit of diversification.

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