1. Assume the economy can either be booming or in recession. The probability of a boom is 57%. If the economy is booming, a certain stock has an expected return of 17%. If the economy is in recession, the expected return of that same stock is 6%. What is the long term expected return of the stock?
2. Stock A has a beta of 0.8, and stock B has a beta of 1.1. You invest 0.5% of your capital in stock A, and the rest in stock B. What is the beta of the resulting portfolio?