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The total value of your portfolio is $10,000: $3,000 of it isinvested in Stock A and the remainder invested in Stock B. Stock Ahas a beta of 0.8; Stock B has a beta of 1.2. The risk premium onthe market portfolio is 8%; the risk-free rate is 2%. Additionalinformation on Stocks A and B is provided below.Return in Each StateStateProbability of StateStock AStock BExcellent15%15%5%Normal50%9%7%Poor35%-15%10%What are each stock’s expected return and the standarddeviation?What are the expected return and the standard deviation of yourportfolio?What is the beta of your portfolio?Using CAPM, what is the expected return on the portfolio?Given your answer above, would you buy, sell, or hold theportfolio?
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