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# Do Problem 7 and Problem 13 on page 383 with the following modifications for pro

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Do Problem 7 and Problem 13 on page 383 with the following modifications for problem 7. A pdf file of page 383 is provided below.

Problem 7

1. Assume probability of state of economy to be equal, that is 1/3 for each state of economy.

2. Construct an equally weighted portfolio of Stock A and Stock B (50% of Stock A and 50% of Stock B). Determine the expected return and standard deviation of such a portfolio.

3. Compare the standard deviation of this portfolio to the average standard deviation of Stock A and Stock B. Which is lower? Explain.

4. Assume return on Stock A has a correlation coefficient of 0.70 with the market portfolio, S&P500, and return on Stock B has a correlation coefficient of 0.45 with the market portfolio, S&P500, and that the return of S&P 500 has a standard deviation of 25%. Determine the beta of Stock A and the beta of Stock B.

Chapter 11 Homework.pdf will be attached.

Derive your answers using the formulas that are shown in formula bar So that I can check your work.

Please do every step mentioned.

Thank you.

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