Brimark Ltd. is considering three possible capital projects for next year. Each project has a 1-year life, and project returns depend on next years state of the economy. The estimated rates of return are shown below.

State of the Economy

Recession Average Boom

Required:

a) Find each b) Compute

i. ii. iii.

c) Compute d) Compute

Probability of Occurrence

0.20 0.60 0.20

Rate of Return

A B C

12% 8% 16% 14% 12% 14% 16% 16% 12%

project expected rate of return, variance, standard deviation and coefficient of variation. the correlation coefficient between;

A and B A and C B and C

the expected return on a portfolio if the firm invests equal wealth on each asset. the standard deviation of the portfolio.