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Economic Conditions Probability Return on Investment A Return on...

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Question

Finance

Economic Conditions

Probability

Return on Investment A

Return on Investment B

Poor

0.2

25%

-2%

Fair

0.5

12%

8%

Good

0.3

4%

30%

An investor is considering the following two investment opportunities. The returns for each, under different economic conditions are forecast as above.

a. Calculate the expected returns and standard deviation of returns for A and B. (6 marks) b. Assume that a portfolio is equally weighted between Investment A and Investment B. What would be the expected return and standard deviation on the portfolio? (4 marks) c. Which investment, A, B, or the equally weighted portfolio would you recommend and why? (2 marks)

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