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A Given the following probable states of the economy and the expected return on a security in each state: B. i State of economy Probability

A Given the following probable states of the economy and the expected return on a security in each state: B. i State of economy Probability Return Recession 0.20 -1.5% Normal 0.55 6% Boom 0.25 8% (4 marks) (6 marks) (2 marks) What is the expected return on the security? What is the standard deviation on the security? Coefficient of variation You have recently received $100,000 and you are considering investing $40,000 in the JMMB and $60,000 in CPJ. Your analysis of each stock revealed the following information. The Expected Returns of both companies are 11% and 15% respectively and the Standard Deviations are 8% and 11% respectively. The correlation between the companies is 0.75. i Compute the expected return of the portfolio ii. Compute the standard deviation of the portfolio (3 marks) (7 marks)

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