You have been given information about the performance of two securities, a Telecoms stock and a Bank stock, over the past ten years in the table below. Based on this information, you have been requested to undertake a performance analysis with a view to forming a two-security portfolio. Year Telecoms Bank % % 2000 0.1 -4.5 2001 -16.1 42.7 2002 -28.3 14.5 2003 20.1 1.7 3.7 2004 21.5 2005 0.2 2.4 53.2 20.7 2006 2007 20.6 -18.9 2008 -28.0 -63.1 2009 4.8 7.5 Assume that the performance of the securities largely follow the state of the economy. For the year 2010, three scenarios of economic performance are expected: Recession at 15%, while Normal growth is at 60%. The Telecoms stock's average return is expected to remain the same under a Normal growth scenario while it may drop by 14% (ie, AM% -14%) under a Recession or increase by a 10% under a Boom. That of the Bank stock is equally expected to remain the same under a Normal growth scenario but may increase by 10% under a recession or decrease by 17% under a Boom. Required: Prepare a brief report of your review and recommendation which should contain the following explanations: 1) The average annual return and return volatility for each security over the period. [4 Marks] 2) The average expected risk/ return profile of each security for the year 2010. (5 Marks) 3) Assuming investment proportions for the Telecoms stock of 0% to 100%, in increments of 10%, determine the feasible set of portfolios from the two securities. [10 Marks] 4) Demonstrate why an investor who initially holds 100% of the more riskier of the two securities would be willing to diversify? [6 Marks] [Total: 25 Marks]