Question ID: 829 This question is worth 10 marks in total. This is a written calculation question, and you should perform the necessary calculations/working on paper to later be scanned and uploaded. Start a new page for this question. For dollar amounts, give your answer to the nearest cent. For interest rates, give our answer as a percentage rounded to 2 decimal places. If any parts of the question use values from earlier parts, use the EXACT values from earlier parts. QUESTION START An investor buys 1 share of Zephyr Ltd at the price of $34.5 on July 1, 2021. The firm is not expected to pay any dividends. Consider the following three possible scenarios for the share price on July 1, 2022: $58 if the economy is "good", with a probability of 30%. $36 if the economy is "moderate", with a probability of 55%. $22.5 if the economy is "bad", with a probability of 15%. a) Calculate the expected return for holding the share for a year. (2 marks) b) Calculate the variance of return and standard deviation of return. (2 marks) c) Explain the concept and benefits of portfolio diversification. Is it possible to diversify away all risk in a portfolio? Explain your answer. (2 marks) d) Suppose that shares in a different company Eagle Inc. can be bought on the market, with returns as follows 1% if the economy is "good", 4% if the economy is "moderate", and 5% if the economy is "bad". a 5% if the economy is "bad". Explain how you could use Eagle Inc. shares in conjunction with shares in Zephyr Ltd. To create a diversified portfolio. You do NOT need to do any calculations here. (2 marks) e) Explain the difference between expected return and realised return. (2 marks) AVE