Question

Expected return and standard deviation for stocks A and B are shown in the table below....

Expected return and standard deviation for stocks A and B are shown in the table below.

State of

Economy

Probability

of state of

the economy

Rate of return if state occurs

Stock

A

Stock

B

Recession

.2

-.10

.15

Normal

.5

.20

.22

Boom

.3

.60

.29

Expected return

.26

.227

Standard Deviation

.25

.05

1. Refer to the information in the table above. Suppose you have $50,000 total. If you put $30,000 in Stock A and $20,000 in Stock B, what will be the expected return of your portfolio.

2. Refer to the information in the table above and problem 1. Calculate the standard deviation of your portfolio.

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