1. Consider the following information (returns are measured on an annual basis):

State of Economy	Probability of State of Economy	Rate of Return if State Occurs - Investment A	Rate of Return if State Occurs - Investment B
Recession	0.2	5%	-21%
Normal	0.6	8%	14%
Boom	0.2	12%	35%

1. Calculate the expected return and the standard deviation for Investment A.
2. Calculate the expected return and the standard deviation for Investment B.
3. Which investment do you prefer, A or B, and why?

Assume that returns on Investments A and B is normally distributed. with 95.44% confidence, we should expect the return on Investment A to be in a range of _____ (lower bound) and ____ (upper bound). What is the confidence level that corresponds to a range of returns of -20% to +20% for Investment B (Hint: use NORMDIST in Excel).