Question

a. You are thinking about investing your money in the stock market. You have thefollowing two stocks in mind: stock A and stock B. You know that the economycan either go in recession or it will boom. Being an optimistic investor, youbelieve the likelihood of observing an economic boom is two times as high asobserving an economic depression. You also know the following about your twostocks:

i. Calculate the expected return for stock A and stock B. ii. Calculate the total risk (variance and standard deviation) for stock A and for stock b. A portfolio consists of the following assets with associated betas:

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