State of the economy Probability End of Period Return
Stock A Stock B
Good 0.3 20% 21%
Average 0.5 16% 15%
Bad 0.2 11% 7%
Q1- What are the expected return and standard deviation of the returns on stocks A and B?
Q2- What is the expected return and standard deviation of a portfolio of 20% in A and 80% in B?
Q3- What is the expected return and standard deviation of a portfolio with 80% in A 4- Which one of the two portfolios should be selected by a risk averse investor? Why?