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State of Economy Probability of State of Economy Return of Stock A if State Occurs Return...

State of Economy Probability of State of Economy Return of Stock A if State Occurs Return of Stock B if State Occurs

Recession 0.30 -0.10 0.08

Normal ? 0.20 0.15

Boom 0.20 0.30 0.20

1) Suppose you have $50,000 total. If you put $30,000 in Stock A and the remainder in Stock B, what are the portfolio returns in each state?

2) Suppose you have $50,000 total. If you put $30,000 in Stock A and the remainder in Stock B, what will be the expected return of your portfolio?

3) Suppose you have $50,000 total. If you put $30,000 in Stock A and the remainder in Stock B, what will be the standard deviation of your portfolio?

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