3. (Probability distributions of returns) Investors have made the following forecast about the returns from investing in securities issued by two companies: State of the economy Boom Good times Average times Bad times Recession Probability of this state of the economy 15% .15 25 .25 35 .35 20 .20 5 .05 100% = 1.00 6. State of the Rate of Return from economy Company A Company B Boom 50% 25% Good times 30 20 Average times 20 15 Bad times --5 5 Recession -25 a. Graph each probability distribution. b. Calculate the expected return of each distribution. c. Calculate the standard deviation of each distribu- tion. d. In terms of total risk, which security is riskier? How do you conclude this? 7