QUESTION 1 (25 MARKS) Suppose your organization is considering to invest in one of the following mutually exclusive projects. It is your organization's policy to accept projects of this nature on the basis of their risk profile which it measures through each project's standard deviation. The expected returns at various states of the economy are provided as follows: Statement of the economy Probability Project A Project B Project C Normal 30% 10% 12% 8% Boom 50% 15% 18% 12% Recession 20% -10% -6% -4% REQUIRED: Carefully answer the following questions within their context. (1.1.) What does the risk-return tradeoff say as far as investments are concern? (1.2.) Mention two types of risk categories and state which one cannot be diversified, and MARKS 2 (1.3.) why? For each, indentify the statiscal measure that can be used to measure it. On the basis of standard deviation, which of the three projects would you recommend to your organization and why? 4 st 15 (1.4.) Differentiate between Degree of operating leverage (DOL), and Degree of Financial Leverage (DFL). Clearly explain what each is an indicative of. 4 TOTAL MARKS FOR QUESTION 1 25