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

State of Economy

Probability of State

Return if State Occurs

Stock A

Stock B

Stock C

Stock D

Boom

40%

-15%

16%

25%

20%

Normal

30%

5%

10%

-3%

2%

Recession

30%

28%

6%

-10%

-5%

9. What is the expected return standard deviation and variance of each
stock?

10. If the investor invests $1000 if A $2000 in B $3000 in C and $4000 in D what is the return of this portfolio in each state of the economy?

A) What is the expected return standard deviation and variance of the portfolio?

B) Given the dollar investment given above if Stock A B C and D have betas of 1.56 1.32 0.1 and 0.7 respectively what is the
beta of this portfolio?

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