Question A3 a) Simon owns shares of stock A and stock B in his portfolio. The total value of his stock A shares is 3,000. The total value of his stock B shares is 7,000. The table below shows the different states of the economy, the probabilities, and the returns for each stock, for the upcoming year. State of the Return on Return on Probability economy stock A stock B Boom 10% -2% -18% Normal 50% 5% 6% Bust 40% 11% 17% Calculate: i) The expected return on stock A ii) The expected return on Simon's portfolio iii) The standard deviation of his portfolio (10 marks) b) Explain the internal and external methods of managing exchange rate risks. (10 marks) c) You are thinking about saving some of your student loan so that you can go travelling after university. Realistically, you think you can invest 800, and wish to save for four years. NatWest offers you the following interest on your saving: 5% for the first year, followed by 4% per year for the next three years, all compounded quarterly. HSBC offers you 5% compounded annually for the four years. i) How much would your final savings be, and which bank would you choose? ii) If you only have four years to save, what annual interest rate would you require in order to accumulate 1,000