Assume you have $1 million Cash and are trying to choose among three securities to invest.

a. Security A is a price weighted index of the following three stocks with the corresponding price information in period 0 and period 1 (assume the initial index divisor is 3): Stock Initial date (t=0) Final Date (t=1)

Price Shares Outstanding Expected Price

A1 $20 100 $25

A2 $30 500 $30

A3 $40 600 $44

b. Security B is a value weighted index of the following three stocks with the corresponding price information in period 0 and period 1 ((assume the initial index divisor is 100): Stock Initial date (t=0) Final Date (t=1)

Price Shares Outstanding Expected Price

B1 $50 800 $100

B2 $60 500 $80

B3 $70 600 $60

c. Security C is a single security with the following expectations:

State of the Market ; Probability ; Final Date (t=1) Ending Price Holding ; Period Return (Including dividends; From t=0 to t=1)

Boom 0.4 $200 25%

Normal 0.4 $180 10%

Recession 0.2 $150 -15% -15%

Given the above choices, calculate and answer

: i). What is the single period expected return for Security A & Security B, respectively?

ii). What is the single period expected return for Security A if stocks A1 and A2 were to split 2 for 1 and 4 for 1, respectively, after period 0?

iii). What is the mean and standard deviation of the holding period return for Security C?