$1.[20$ marks$]$

Three assets$-$A$,$ B$,$ and C$-$are currently being considered by Perth Industries. The probability distributions of returns for these assets are shown in the following table.

RETURN

A A B B C C

YEAR RETURN PROBABILITY RETURN PROBABILITY RETURN PROBIBILITY

$20050\mathrm{.}170\mathrm{.}400\mathrm{.}160\mathrm{.}300\mathrm{.}150\mathrm{.}25$

$20060\mathrm{.}180\mathrm{.}300\mathrm{.}150\mathrm{.}350\mathrm{.}160\mathrm{.}40$

$20070\mathrm{.}190\mathrm{.}300\mathrm{.}140\mathrm{.}350\mathrm{.}170\mathrm{.}35$

A

Attempt all questions.

a$.$ Calculate the expected value of return for each of the three assets. Which provides the largest expected return? $[3]$

b$.$ Calculate the standard deviation for each of the three assets. Which appears to have the greatest risk? $[3]$

C$.$ Calculate the coefficient of variation for each of the three assets. Which appears to have the greatest relative risk? $[3]$B

B

Perth Industries has identified two investment alternatives:

$150\%$ of A and $50\%$ of B

$250\%$ of A and $50\%$ of C

d$.$ Calculate the expected return for each of the two alternatives listed above i$.$e$.$ I &$2(3]$

e Calculate the standard deviation for each of the two alternatives listed above i$.$e$.1$ & $2.[6]$

f$.$ Which of the two alternatives should Perth Industries invest in$?[2]$