Question: b) Mrs Daisy is considering two securities, A and B, and the relevant information is given below: State of Economy Probability Return on Security A

b) Mrs Daisy is considering two securities, A and B, and

b) Mrs Daisy is considering two securities, A and B, and the relevant information is given below: State of Economy Probability Return on Security A (%) Return on Security B (%) Bear 0.6 3.00% 6.50% Bull 0.4 L 15.00% 6.50% 1. Calculate the expected returns and standard deviations of security A and security B. (5 marks) 2. Explain how diversification can reduce the unsystematic risk of a given portfolio

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