a) Terri considers investing in Shopper Ltd shares. Terri forecasts three possible states of the economy over the next year (Boom, Steady Conditions, Recession). The probability of each state and the forecast annual return to Shopper Ltd shares in each of those three states are shown below

State of the Economy. Probability of that State Shopper Ltd Share Return

Boom 20% 12%

Steady 60% 8%

Recession 20% 6%

i-Calculate the expected return, E(r), to Shopper Ltd's shares (as a percentage to two decimal places).

ii- Calculate the standard deviation of Shopper Ltd's share returns (as a percentage to two decimal places).

b) Lyn purchases shares in two companies, BG Limited and Mod Ltd, to form the initial holdings in her portfolio.

• -BG Ltd shares were purchased at $20 each and Lyn expects the price to increase
• to $24 in one year from now.
• -Mod Ltd shares were purchased at $100 each and Lyn expects that share price to
• increase to $105 in one year from now. Neither company is expected to pay any dividend.
• If Lyn plans to invest 30 per cent of her funds in BG Ltd and the remainder in Mod Ltd, calculate the expected return from her portfolio over the year.