QUESTION ONE: COMPULSORY

Nkumbu is a risk$-$analyst at NBS bank $($NBS$),$ a commercial bank with operations in Southern African region. NBS is currently expanding its operations to include investments in equities. NBS uses portfolio theory to determine expected returns and risk as well as Value at Risk $($VaR$)$ models to monitor its risk exposures.

Nkumbu is currently considering investing in two stocks, A and B$.$ As part of his analysis, he has determined the following:

$\backslash$table$[[\backslash$table$[[$State of$],[$economy$],[$Good$]],0\mathrm{.}3,$Return on stock A$,$Return on stock B$],[$Normal$,0\mathrm{.}4,24\%,30\%$