Question: The return for two companies, Alpha and Beta, depends on the strength of the economy. EconomyProbabilityAlpha ReturnBeta Return strong 0.3 12% 5% normal0.4 6% 8%

The return for two companies, Alpha and Beta, depends on the strength of the economy.

EconomyProbabilityAlpha ReturnBeta Return

strong 0.3 12% 5%

normal0.4 6% 8%

weak 0.2 2% 10%

What is the expected return for Alpha?

What is the expected return for Beta

What is the expected return of a portfolio that invests 75% in Alpha and 25% in Beta.

Now consider a portfolio that invests 75% in Alpha and 25% in Beta.What are the expected returns if the economy is strong, normal, and weak?

Using the returns from question (which depend on how the economy does), what is the expected return for the portfolio?

What is the standard deviation of returns for the portfolio?

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