There are two stocks in the market, Stock A and Stock B. The price of Stock...

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There are two stocks in the market, Stock A and Stock B. The price of Stock A today is $80. The price of Stock A next year will be $69 if the economy is in a recession, $92 if the economy is normal, and $102 if the economy is expanding. The probabilities of recession, normal times, and expansion are .25, .55, and 20, respectively. Stock A pays no dividends and has a correlation of .75 with the market portfolio. Stock B has an expected return of 14.5 percent, a standard deviation of 34.5 percent, a correlation with the market portfolio of .29, and a correlation with Stock A of .41. The market portfolio has a standard deviation of 18.5 percent. Assume the CAPM holds. a-1. What is the return for each state of the economy for Stock A? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a-2. What is the expected return of Stock A? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a-3. What is the standard deviation of Stock A? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a-4. What is the beta of Stock A? Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161. a-5. What is the beta of Stock B? Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161. a-6. If you are a typical, risk-averse investor with a well-diversified portfolio, which stock would you prefer? b-1. What is the expected return of a portfolio consisting of 65 percent of Stock A and 35 percent of Stock B? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b-2. What is the standard deviation of a portfolio consisting of 65 percent of Stock A and 35 percent of Stock B? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b-3. What is the beta of the portfolio in part (b)? Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161. There are two stocks in the market, Stock A and Stock B. The price of Stock A today is $80. The price of Stock A next year will be $69 if the economy is in a recession, $92 if the economy is normal, and $102 if the economy is expanding. The probabilities of recession, normal times, and expansion are .25, .55, and 20, respectively. Stock A pays no dividends and has a correlation of .75 with the market portfolio. Stock B has an expected return of 14.5 percent, a standard deviation of 34.5 percent, a correlation with the market portfolio of .29, and a correlation with Stock A of .41. The market portfolio has a standard deviation of 18.5 percent. Assume the CAPM holds. a-1. What is the return for each state of the economy for Stock A? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a-2. What is the expected return of Stock A? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a-3. What is the standard deviation of Stock A? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a-4. What is the beta of Stock A? Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161. a-5. What is the beta of Stock B? Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161. a-6. If you are a typical, risk-averse investor with a well-diversified portfolio, which stock would you prefer? b-1. What is the expected return of a portfolio consisting of 65 percent of Stock A and 35 percent of Stock B? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b-2. What is the standard deviation of a portfolio consisting of 65 percent of Stock A and 35 percent of Stock B? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b-3. What is the beta of the portfolio in part (b)? Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.