Question: You have been given the following data: States Probability A Bear Market 10.3 -40% -10% Normal Market 10.4 18% 20% Bull Market 10.3 50% 10%

You have been given the following data: States Probability A Bear Market 10.3 -40% -10% Normal Market 10.4 18% 20% Bull Market 10.3 50% 10% a. Compute the expected return of the stocks A and B? (1 Mark) b. Compute the risks of the stocks A and B? (1 Mark) c. If the return of the Treasury Bills is 6%. Compute the risk premium and the risk aversion of each stock (1 Mark) d. Assume that you invest $ 120,000 in X and $30,000 in Y. Compute the expected return and the risk of your portfolio (2 Marks) e. Compute the reward to volatility of your portfolio and Interpret your answer (1 Mark) f. To decrease your risk on the financial market, you decide to Invest $ 150,000 in the Treasury Bills. Compute the proportions of A and B in the complete portfolio. (1 g. Compute the expected return and the standard deviation of the complete portfolio. (1 Mark) h. Compute the reward to volatility of the complete portfolio. What do you notice? (1 Mark) i. Explain the Capital Allocation Line (1 Mark)

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