Transcribed Image Text
Consider the following situation:State of EconomyProbability of State of EconomyReturns if State OccursStock AStock BStock CBoom20%25%10%5%Recession80%-30%5%10%The expected return on the marketportfolio is 7% and the US Treasury bill yields 3%. The capitalmarket is currently in equilibrium.Show your work. Do not use excel.(5 points) Which stock has the most systematic risk? Provideall the steps and equations.(5 points) Which stock has the most unsystematic risk? Explainwhy. Provide all the steps and equations.(10 points) What is the standard deviation of a portfolio whichis comprised of $8,400 invested in stock A, $3,600 in stock B, and$8,000 in stock C?(5 points) If the expected inflation rate is 2.5%, what is theexact expected real return on the portfolio of part (c)?