Expected Returns You are responsible for managing a portfolio of two investments for the coming year. You have read all

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Expected Returns You are responsible for managing a portfolio of
two investments for the coming year. You have read all of the
latest financial news and according to your favourite reputable
financial analysts, the probability of another recession occurring
is 40% and the probability of a booming economy is 20%; otherwise
the economy will be behaving normally. "Common shares of Firm A are
expected to earn a return of 30% during boom times, but lose 12%
during a recession. Normally, the firm’s common shares would earn a
20% return. The price of Firm B’s common shares is expected to
decline 15% during boom times, but increase by 5% during a
recession. Normally the firm’s common shares would earn a 10%
return. " h. Find the Minimum Variance Portfolio (MVP) consisting
of some combination of shares of both Firm A and Firm B. What
proportion of the portfolio must be invested in Firm A's common
shares and what proportion in those of firm B to achieve the MVP?
(Use the "Solver" tool in Excel.) i What is the standard deviation
of expected returns on the MVP? j. What is the expected return on
the MVP?