Question 2 (10 marks)

The following probability distribution relating to returns on individual security and the market portfolio is given:

State	Probability	Return on a Security, %	Return on a selected Market Index, %
Boom	0.10	31	25
Good	0.14	23	17
Average	0.31	10	14
Poor	0.25	3	5
Crash	0.20	-15	-5

Required:

Calculate the expected return and standard deviation of returns for the market index portfolio.

[Answer and show workings here]

Expected Return: 3 marks

Variance: 3 marks

Standard Deviation: 4 marks