The table below provides the share return forecasts and associated probabilities for Western Innovations Limited (WIL) and Albright Limited (ABL). The share return performance for the companies depends to a great extent on future economic conditions. WIL ABL Return (%) Probability (%) Return (%) Probability (%) 20.0 40 20.3 20 12.0 20 10.5 50 5.0 40 7.0 30

a. Calculate the expected return on each share

b. Calculate the variance and standard deviation for each share

c. Assuming a correlation coefficient of -0.5 between the returns from the two shares, calculate the expected return and the standard deviation of the following investment allocation strategies: i. Investing 50% of available funds into WIL and the remaining 50% into ABL

ii. Investing 75% of the available funds into WIL and the remaining 25% into ABL

Assuming no other investment opportunities exist, which of the two strategies would be preferred by a highly risk averse investor? Discuss your recommendation