The annual rate of return and related probabilities given below summarise your analysis for two securities.

Security A

Security B

Rate of Return

Probability

Rate of Return

Probability

10%

45%

5%

30%

14%

35%

15%

30%

18%

20%

25%

40%

Required:

a. Calculate the expected rate of return,E(R), for each security. (2 marks)

b. Calculate the standard deviation,, for each security. (3 marks)

c. Which security should you purchase?Explain why you make such choice. (2 marks)

d.Imagine that you will make a portfolio that consists of 30% of Security A and 70% of Security B, assuming thecovariancebetween A and B (A,B) is -0.0026.Based on the answer you obtain froma) and b), calculate the expected return,E(RP), and standard deviation,P, of your portfolio. (5 marks)