Assumes you are considering investments under different economic circumstances in the coming year. Three economic conditions...

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Assumes you are considering investments under different economic circumstances in the coming year. Three economic conditions may occur: • Economic growth with a probability of 0.4; • Simple economy with a probability of 0.5; and • Economic slowdown with a probability of 0.1. Alternative three-year returns are as follows: Economic Conditions Strong growth Moderate Recession Required: Using the information above: i) ii) iii) iv) Probability 0.4 0.5 0.1 Calculate variance. A 3,000 2,700 2,200 Returns (RM) B 2,800 2,300 2,000 Calculate the expected rate of return for each investment option. Calculate the risk of each investment option (standard deviation). C 3,200 2,500 1,900 Based on your answer, which investment would you choose? Justify your answer. Assumes you are considering investments under different economic circumstances in the coming year. Three economic conditions may occur: • Economic growth with a probability of 0.4; • Simple economy with a probability of 0.5; and • Economic slowdown with a probability of 0.1. Alternative three-year returns are as follows: Economic Conditions Strong growth Moderate Recession Required: Using the information above: i) ii) iii) iv) Probability 0.4 0.5 0.1 Calculate variance. A 3,000 2,700 2,200 Returns (RM) B 2,800 2,300 2,000 Calculate the expected rate of return for each investment option. Calculate the risk of each investment option (standard deviation). C 3,200 2,500 1,900 Based on your answer, which investment would you choose? Justify your answer.

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I Expected Rate of Return for Investment A Expected Rate of Return for A 04 x 3000 05 x 2700 01 x 22... View the full answer