The following information relates to Netherton’s investment performance, during various economic conditions. Estimate the expected return and overall risk (standard deviation) of this investment 

Economic conditions

 Boom Probability=0.20 Expected return=+40% 

Normal Probability=0.60 Expected return= +15% 

Recession Probability=0.20 -Expected return=-10%

 Required: 

1.1. Calculate the expected risk of return of this investment. (10) 1.2. Estimate the overall risk (standard deviation) of this investment. (15) 1.3. Discuss the difference between expected return and required return. (10)

Answer rating: 100% (QA)

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