ANSWER ALL QUESTIONS

M&M Micro Processors Ltd is in process of purchasing high$-$tech Equipment for its production of microchips for the electronic industry. In its search, it has gathered the following information about two possible Equipment A and B$.$ Both Equipment will be able to provide benefits over a ten$-$year period, and each required an investment of $$10000.$ Management has constructed the following table of estimates of rate of return and probabilities for Pessimistic, most likely and optimistic results.

Equipment A

Equipment B

State of nature

Rate of Return

Probability

Rate of Return

Probability

Recession

$11\%$

$0\mathrm{.}30$

$9\%$

$0\mathrm{.}30$

Normal

$18\%$

$0\mathrm{.}45$

$18\%$

$0\mathrm{.}45$

Boom

$22\%$

$0\mathrm{.}25$

$25\%$

$0\mathrm{.}25$

Table $1.$

Required:

Compute the expected rate of return for each Equipment

Compute the variance and standard deviation of the rate of return for each Equipment

Coefficient of variation for each Equipment

Recommend which Equipment the firm should purchase

The firm wishes to estimate the beta of a portfolio that consists of two assets X and Y$.$ The investment manager of the firm has gathered the following information on the two assets.

Securities

Rate of Return

Standard Deviation

Beta

X

$20\%$

$20\%$

$1\mathrm{.}5$

Y

$10\%$

$30\%$

$1\mathrm{.}0$

Risk free asset

$5\%$