(Must manually calculate all and show the calculation procedures. Keep at least 4 decimal digits to the right of the decimal point for all calculations)

Given the following information:

State                      Probability                  X                                 Y                    

Boom                    .25                               15%                           10%

Normal                  .60                               10%                             9%

Recession             .15                               5%                             10%

a. Calculate the expected return and the standard deviation for X and Y respectively.

b. What is the expected return for a portfolio with an investment of $6,500 in asset X and $3,500 in asset Y? [Hint: Calculate portfolio weights, Wx and Wy , first.]

c. Calculate the standard deviation for this portfolio using three methods:

1. Use Formulas (5) and (6)

2. Use Formula (10)

3. Use Formula (11)

Remember that you need to show the calculation procedures for all questions listed here. Only showing final answers will not get any credit.