Consider the following probability distribution for stocks A and B:
State Probability Return on Stock A Return on Stock B
1 30% 10% 11%
2 40% 15% 12%
3 30% 18% 15%
1) What are the expected rates of return of stocks A and B respectively?
2) What are the standard deviations of stocks A and B respectively?
3) If you invest 50% of your money in A and 50% in B, what would be your portfolio's expected rate of return and standard deviation (assume the coefficient of correlation between A and B = 0.895)?