QUESTION 1 The management of Blue Co. is evaluating two projects, A and B, whose returns depend on the future state of the economy as shown below: Probability IRR of Project A (%) IRR of Project B (%) 27 35 0.3 0.4 0.3 18 20 1m is budgeted for the two-project portfolio, which includes 440,000 for Project A and the rest for Project B. If the plan is accepted, it would double the size of the company. Required: a) What is the return and the level of risk of Project A? How about Project B? Which project is preferred by a risk neutral investor and why? (10 marks) b) Calculate the return and assess the degree of risk of the two-project portfolio. (15 marks) Blue's existing activities have a standard deviation of 10%. How does the new portfolio analysed in b) affect the overall risk of the company