FOB PFS1313/JAN15 QUESTION 3 (25 MARKS) You are considering investing in three (3) possible securities from different companies. The possible returns and related probabilities of each investment are as follows: Probability 0.40 0.20 0.40 Stock A Return (%) -25 9 10 Stock B Return (%) 1 7 11 Stock C Return (%) -1.5 7.5 12 Required: a. Calculate the expected retum for each security. (6 marks) b. Calculate the variance for each security. (9 marks) c. Calculate the standard deviation for each security. (3 marks) d. Which security should the company choose? (3 marks) e. Assume that, the expected return for market is 12.3% and the risk premium market is 8.5%. Investments A B and C have betas of 0.8.0.7 and 0.9 respectively. Calculate the required rate of return for each security. (4 marks)