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FTL821D.Question 3 (Chapter 4, Risk and Required Rate of Return) (11 Marks) For every entity,...

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FTL821D.Question 3 (Chapter 4, Risk and Required Rate of Return) (11 Marks)

For every entity, investing in a right security/asset is considered a crucial task. Given the persisting global economic crisis, majority of entities are resorting to a new normal especially those within the supply chain management space. Suppose your organization is contemplating to invest in one of the following mutually exclusive securities:

Expected returns State of the economy Probability Security X Security X Normal 40% 12% 7% Boom 50% 10% 8% Recession 10% -2% -1%

Required: Carefully, answer the following questions: Marks 3.1. Based on the expected return, which security would you recommend to your organization? 4 3.2. Based on the standard deviation, which security would you recommend to your organization? 4 2.3. Given your answers in (3.1) and (3.2), which one would you recommend to your organization as a final basis of its investment choice? 3 Total marks 11

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