Question: Using the probability distribution shown below, calculate the expected risk and return estimates of each stock and of a portfolio comprised of 40% of Stock

Using the probability distribution shown below, calculate the expected risk and return estimates of each stock and of a portfolio comprised of 40% of Stock A and 60% of Stock B.

State of Economy Probability of State Occurring Stock A's Conditional Return Stock B's Conditional Return
Recession 0.3 -12% 20%
Normal 0.5 14% 12%
Boom 0.2 25% -10%

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