Question: Question 2 (Total 40 marks) Consider the following scenario analysis: Rate of return Scenario Probability Stock A Stock B Stock C Boom 0.10 7.8% 23.6%

Question 2 (Total 40 marks) Consider the following scenario analysis: Rate of return Scenario Probability Stock A Stock B Stock C Boom 0.10 7.8% 23.6% 18.4% Normal 0.85 9.1% 15.4% 13.7% Recession 0.05 11.8% -12.3% 6.4% A) (i) Calculate the expected rate of return, variance and standard deviation of each investment. (18 marks) (ii) Explain with brief reason which investment you would invest. (6 marks) B) Consider a portfolio with weights of 30% in both Stock A and C and 40% in Stock B. (i) What is the rate of return on the portfolio in each scenario? (6 marks) (ii) What are the expected rate of return, variance and standard deviation of the portfolio? (8 marks)

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