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Stocks X and Y have the following probability distributions of expected returns for four possible economic...

Stocks X and Y have the following probability distributions of expected returns for four possible economic states.

Economy State Probability Stock X Stock Y
1 0.1 -8% 5%
2 0.4 -10% 8%
3 0.4 9% -2%
4 0.1 14% -10%

e. Calculate the two-stock portfolio’s standard deviation.

f. Calculate the two-stock portfolio’s beta.

g. If the overall market return is 8% and the risk-free rate is 1%, what is the two-stock portfolio’s required return?

h. How can you reallocate t

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