1) You believe there is a 60% chance of recession and 40% chance of expansion next year. If the annual return on PJ Nickel is -3% in a recession and 5% in an expansion, what do oyu expect the return on PJ Nickle to be next year?
2) If you invested 50% of your portfolio in a risk-free asset and 50% in a market index (like the S&P 500), what would be the estimated beta of your portfolio?