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1) (25 points) Assume that there are three states of the economy and each state...

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Accounting

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1) (25 points) Assume that there are three states of the economy and each state is equally likely. Please assign returns for Stock A and B (RA and RB, respectively) for each state in the table below, depending on your own choice (The use of the same input data by different students will be treated as a cheat attempt). Then construct a portfolio consisting of Stock A and Stock B with weights Wa=70% and Wb=30% and calculate portfolio returns in each state of the economy (i.e., calculate the entries in the last column of the table). Finally, calculate the expected return and standard deviation of this portfolio, using the portfolio returns calculated in the last column of the table. RA (%) Rb (%) Portfolio Return (70% in Stock A and 30% in Stock B) States of the Economy Slump Normal Expansion

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