(1) Suppose Mr McKay's expectations regarding the stock market are as follows: State of the economy Probability Boom Normal growth Recession 0.3 0.4 0.3 Holding Period Return (HPR) 40% 18% -14 % Calculate the mean and standard deviation of the HPR on stocks and critically explain your results. (25 Marks) (ii) Mrs Findley is considering the choice between investing 50,000 in a conventional 1-year bank CD offering an interest rate of 5% and a 1-year "Inflation Plus" CD offering 1.5% per year plus the rate of inflation. a) By comparing the above two investments, critically discuss which one is the safer investment. (25 Marks) Page 3 of 5 Semester 1 - 2021/22 C31CM b) Explain which investment offers the higher expected return. (25 Marks) c) If Mrs Findley expects the rate of inflation to be 3% over the next year, explain which is the better investment. 125 Marks)