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6) You are planning to invest in two stocks and a risk free asset. You...

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6) You are planning to invest in two stocks and a risk free asset. You are sure that economy is expected to behave according to the following table. Likelihood of each scenario is given next to the state of economy. You are planning to invest where you put a quarter of your money in stock A and half of your money stock B and a quarter of your money in the risk free assets. You also know the following information. Return on Risk Free Assets/RF Return on Stock A/RA -5% 13% 27% State of the Economy Probability Recession 25% Normal 40% Boom 35% 13.549% as annual interest rate. Return on Stock B/RB 12% 5% -12% *% *% *% wwwwwww wwwwwwwwww a) Calculate the total risk (standard deviation) for Stock A, Stock B and the risk free assets. (5 points) b) Calculate the expected return for your portfolio. (5 points) c) What is the total risk of this portfolio? (5 points) d) Calculate the risk retum trade off of each stock alternative and portfolio. Which one is best investment idea and why? (5 points) 6) You are planning to invest in two stocks and a risk free asset. You are sure that economy is expected to behave according to the following table. Likelihood of each scenario is given next to the state of economy. You are planning to invest where you put a quarter of your money in stock A and half of your money stock B and a quarter of your money in the risk free assets. You also know the following information. Return on Risk Free Assets/RF Return on Stock A/RA -5% 13% 27% State of the Economy Probability Recession 25% Normal 40% Boom 35% 13.549% as annual interest rate. Return on Stock B/RB 12% 5% -12% *% *% *% wwwwwww wwwwwwwwww a) Calculate the total risk (standard deviation) for Stock A, Stock B and the risk free assets. (5 points) b) Calculate the expected return for your portfolio. (5 points) c) What is the total risk of this portfolio? (5 points) d) Calculate the risk retum trade off of each stock alternative and portfolio. Which one is best investment idea and why? (5 points)

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