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QUESTION TWO [35] The following information relates to Netherton’s investment performance, during various economic conditions. estimate...

QUESTION TWO [35]

The following information relates to Netherton’s investment performance, during various economic conditions. estimate the expected return and overall risk (standard deviation) of this investment.

Economic Conditions Probability Expected Return
Boom 0.20 +40%
Normal 0.60 +15%
Recession 0.20 -10%

Required:

2.1. Calculate the expected risk of return of this investment. (10)

2.2. Estimate the overall risk (standard deviation) of this investment. (15)

2.3. Discuss the difference between expected return and required return. (10)

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