INTEGRATED CASE MERRILL FINCH INC. 8-23 RISK AND RETURN Ass ume that you recently graduated with a major in finance. You j financial services corporation. Your first assign financial planner with Merrill Finch Inc., a large invest $100,000 for a client. Because the funds are to be invested in a business at the end of 1 vear been instructed to plan for a 1-year holding alternatives in the following table, shown with their probabites disregard the items at the bottom of the data; you will fll in the blanks later.) for a 1-year holding period. Further, your boss has restricted you to year,y and associated outcomes. Returns on Alternative Investments Estimated Rate of Return u.s. Market Two-Stock High Tech State of the Economy Recession Below average Average Above average Boom Collections RubberPortfolio Portolie (25%) T-Bills 3.0% 3.0 3.0 3.0 3.0 Probability 3.5%" (19.5%) (5.5) 7.5 22.5 24.5% 0.1 0.2 0.4 0.2 0.1 (29.5%) (9.5) 12.5 27.5 42.5 10.5 (16.5) 0.5 (5.0) 38.5 (20.0) 23.5 5.8 35.5 113 1.2% 73% 18.8 2.6 0.88 8.0% 15.2 1.9 0.0 11.2 4.6 CV 0.8 -0.50 Note: The estimated returns of U.S. Rubber do not always move in the same direction as the overall economy. For example. wite the economy is below average, consumers purchase fewer tires than they would if the economy was stronger. Howee the economy is in a flat-out recession, a large number of consumers who were planning to purchase a new car may to wait and instead purchase new tires for the car they currently own. Under these circumstances, we would expect s Rubber's stock price to be higher if there is a recession than if the economy is just below average