Consider an economy with two types of firms, S and I. Firms S all move together, while firms I move independently. For both types of firms, there is a 75% probability that the firms will have an 8% return and a 25% probability that the firms will have a 15% return. Please round your answers to two decimals. a) What is the volatility (standard deviation) of a portfolio that consists of an equal investment in 20 firms of type S? (5 marks) b) What is the volatility (standard deviation) of a portfolio that consists of an equal investment in 20 firms of type I? (5 marks) c) Assuming you are risk-averse, and you could choose one of the above portfolios in which to invest, which one would you choose? Please explain your reasons. (10 marks | 200 words

Consider an economy with two types of firms, S and I. Firms S all move together, while firms I move independently. For both types of firms, there is a 75% probability that the firms will have an 8% return and a 25% probability that the firms will have a -15% return. Please round your answers to two decimals. a) What is the volatility (standard deviation) of a portfolio that consists of an equal investment in 20 firms of type S? (5 marks) b) What is the volatility (standard deviation) of a portfolio that consists of an equal investment in 20 firms of type I? (5 marks) c) Assuming you are risk-averse, and you could choose one of the above portfolios in which to invest, which one would you choose? Please explain your reasons. (10 marks | 200 words) Consider an economy with two types of firms, S and I. Firms S all move together, while firms I move independently. For both types of firms, there is a 75% probability that the firms will have an 8% return and a 25% probability that the firms will have a -15% return. Please round your answers to two decimals. a) What is the volatility (standard deviation) of a portfolio that consists of an equal investment in 20 firms of type S? (5 marks) b) What is the volatility (standard deviation) of a portfolio that consists of an equal investment in 20 firms of type I? (5 marks) c) Assuming you are risk-averse, and you could choose one of the above portfolios in which to invest, which one would you choose? Please explain your reasons. (10 marks | 200 words)