Question 4 (this question has three parts (a), (b) & (c)) (a) Ruby decides to invest $300,000 in stock A, $250,000 in stock B, $150,000 in stock C and $100,000 in stock D. She has forecasted the possible returns for all four stocks, which will vary according to the state of the economy. The projections are as follows: Economy Boom Ris (%) 21 RiB (%) Ric (%) Rio (%) 9 18 25 Probability (%) 25 Normal 10 18 14 15 35 Recession -5 3 -4 8 40 Calculate the expected return of Ruby's portfolio. (Marks 5) (Marks 5) (b) (i) FX dealer Christopher provides a quote of AUD/USD 0.8025-27. Explain what this quote means. (ii) A Japanese firm needs New Zealand dollars to buy New Zealand goods. It would like to find out the New Zealand dollar value relative to the Japanese Yen (JPY/NZD). The only quotes available are as follow: NZD/AUD= 1.084 JPY/AUD = 77.24 What is the exchange rate for JPY/NZD? (Marks 1 + 2 = 3) (c) How is a simple interest rate agreement different to a compound interest rate agreement? Give examples. (Marks 2)