Question 3 1iI'ou have been recommended two investments by a friend. The rst investment is in a company called Western oal, the second is in a company called Southern Solar. Each investment has two possible outcomes which are identical but each outcome has a different probability. The payoffs and probabilities of the payoffs are Payoff Probability [Western] Pro babil'itiiir [5o uthem] Sl [1.30 [LSD 550*} 0.31] {LSD {a} Compute the expected return and standard deviation of each investment. [5 marks} {b} Your utility is given by U = 2W where w is the payoff from the investment. whet attitude to risk do you have? Using the expected utility of the two investments. determine which investment you would choose and explain why it is preferred in terms of risk and return? {5 marks] [5 + 5 = 1!) marks}