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XYZ limited own 3 stocks and has estimated the following probabilities of returns Outcome Probability Return of A% Return of B % Return of C

  1. XYZ limited own 3 stocks and has estimated the following probabilities of returns

Outcome

Probability

Return of A%

Return of B %

Return of C %

1

0.3

-10

10

0

2

0.2

0

10

10

3

0.3

10

5

15

4

0.2

20

-10

5

  1. Calculate the expected return and risk of the individual security.

ii. Advise the an investor on the best two asset portfolio stating other factors the investor will consider during portfolio construction

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