Question 3 [30] 3.1 Define the following concepts: 3.1.1 The return on an investment. 3.1.2 The standard deviation of an investment asset. 3.2 Vortex Manufacturing needs to replace one of its machines. There are two different machines, Bendit and Twister, on the market, which management is considering. Based. on Vortex's business activities, the manufacturer of the Bendit machine has done an analysis of the risk and return on the machine for Vortex management. The manufacturer estimates that the expected return per R1 000 invested is R80.00 with a standard deviation of R13.00. Similar information is not available for the Twister machine. To compare the risks and return of the two machines, Vortex's accountant prepared the following information for the Twister machine: Scenario Pessimistic Most likely Optimistic Probability 20% 50% 30% Return R60 R90 R110

3.1 Define the following concepts: 3.1.1 The return on an investment. 3.1.2 The standard deviation of an investment asset. (2) 3.2 Vortex Manufacturing needs to replace one of its machines. There are two different machines, Bendit and Twister, on the market, which management is considering. Based on Vortex's business activities, the manufacturer of the Bendit machine has done an analysis of the risk and return on the machine for Vortex management. The manufacturer estimates that the expected return per R1 000 invested is R80.00 with a standard deviation of R13.00. Similar information is not available for the Twister machine. To compare the risks and return of the two machines, Vortex's accountant prepared the following information for the Twister machine: Required: Note: Show all your calculations and round off all final answers to the nearest whole number. 3.2.1 Calculate the expected return for the Twister machine using the information provided. (4) 3.2.2 Calculate the standard deviation for the Twister machine. (5) 3.2.3 Based on the expected returns and standard deviations for the two machines, which machine should Vortex management purchase? Motivate your answer. (17)