Question 4 Milky and Choc has probability estimates for the four potential economic states for the coming year. The probability of a boom economy is 25%, the probability of a stable growth economy is 50%, the probability of a stagnant economy is 15% and the probability of a recession is 10%. Individual investments for coming year are as follows: Forecasted Returns for Each Economy Investment Boom Stable growth Stagnant Recession Stock 20% 14% 5% -12% Corporate bond 10% 8% 5% 4% Government bond 8% 6% 4% 2% a. Estimates the expected return for each of individual investment. (6 marks) b. Calculate the variance and standard deviation of the three (3) investments. (15 marks) c. If the estimates for both the probabilities of the economy and the returns in each state of the economy are correct, which investment would you choose? Considering both risk and return, justify your answer. (4 marks) [Total: 25 marks]