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Ms. Smith wants to invest in two securities, ABC and PQR, andthe relevant information is below: State of the Economy ProbabilityReturn on ABC (%) Return on PQR (%) Bear 0.25 -15% 4% Moderate 0.55% 4% Bull 0.25 20% 4%a. Calculate expected returns and standard deviations of twosecurities.b. Ms. Smith shorts $1,000 of PQR and invests all proceeds fromthis short sale as well as $3,000 of her own money into ABC. Whatis the expected return and the standard deviation of herportfolio?
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