Part III: Risk and Return Analysis. This section of the test addresses the risk return analysis. You are asked to invest $100,000 from an estate for which the bank is trustee. Because the estate is expected to be distributed to the heirs in approximately one year, you have been instructed to plan for a one-year holding period. Furthermore, you are restricted to the following investment alternatives, shown with their probabilities and associated outcomes the Table (For now, disregard the items at the bottom of the data; you will fill in the blanks later.)

a. Calculate the expected rate of return on each alternative and fill in the row for r in the table. You should recognize that basing a decision solely on expected returns is appropriate, the riskiness of each alternative is an important aspect of the decision. Calculate the standard deviation of returns for each alternative and fill in the row for in the table

Estimated Returns on Alternative Investments U.S. State of the Economy Market Portfolio Two-Stock Portfolio Probability T-Bills High Tech Collections Rubber 0.1 10.0% -10.0 0.2 Recession Below Average Average Above Average Boom 8.0% 8.0 8.0 -22.0% -2.0 20.0 35.0 28.0% 14.7 0.0 - 10.0 -20.0 -13.0% 1.0 15.0 29.0 0.4 7.0 0.2 8.0 45.0 0.1 50.0 30.0 43.0 |||||||| o CV