Question: Question 2 (10 marks) The following probability distribution relating to returns on individual security and the market portfolio is given: State Probability Return on a

Question 2 (10 marks)

The following probability distribution relating to returns on individual security and the market portfolio is given:

State

Probability

Return on a Security, %

Return on a selected Market Index, %

Boom

0.10

31

25

Good

0.14

23

17

Average

0.31

10

14

Poor

0.25

3

5

Crash

0.20

-15

-5

Required:

Calculate the expected return and standard deviation of returns for the market index portfolio.

[Answer and show workings here]

Expected Return: 3 marks

Variance: 3 marks

Standard Deviation: 4 marks

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