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la. Perceived Return Economy Probability A B C Recession 0.2 -20% 70% 30% Below Average 0.1 -10% 40% -45% Average 0.4 -4% 15% 20%

   



la. Perceived Return Economy Probability A B C Recession 0.2 -20% 70% 30% Below Average 0.1 -10% 40% -45% Average 0.4 -4% 15% 20% Above Average 0.1 30% -30% -18% Boom 0.2 60% -40% 10% Based on the above table, please make decisions on the following questions: (Please show all your workings.) a. Which asset would you choose as a stand-alone investment? Why? (6 points) b. If a portfolio is formed with the three stocks (A:20%, B: 50% and C:30%), comment on the risk-reduction effect on this portfolio. lb. How can we determine the efficiency of a financial market? (6 points) (12 points)

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