Listen You are considering the purchase of either Stock A or Stock B (but not both), and have compiled the following data based on the expected returns in three different economic states. Rate of Return if State State of the Probability of the State of Occurs Economy Economy Stock A Stock B Best Case 0.25 0.14 0.25 Base Case 0.45 0.09 0.15 Worst Case 0.30 0.06 -0.10 a. Calculate the expected return for the Stock A and Stock B. (2 marks) b. Assume that the variance for the two stocks is as follows: Stock A = 0.000883 Stock B = 0.013693 Calculate the standard deviation for Stock A and Stock B. (2 marks) c. If Your main investment objective were to minimize risk in your portfolio, comment on the returns and risk of Stock A and B and which stock would you select based on your answer in part b?
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