1. Consider the returns of two shares, A and B, under three possible scenarios: Scenario Stock A Stock B I II -50% 6% 19% Probability 8% III 15% -1% 28% 23% 69% Compute (a) the expected returns of the stocks A and B; (b) the standard deviation of the returns of the stocks A and B; (c) how can you find the minimum variance portfolio? Show the method and provide the weights; (d) the expected return and the standard deviation of the portfolio where the wealth allocated to the A stock is three times that of the B stock. (e) Assuming the risk free rate is equal to 5% write the equation of the Capital Allocation Line for the portfolio in point (d). What does the slope represents? A

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