Following are the probability distributions for Investment A Investment P and

Following are the probability distributions for Investment A Investment P and Investment Z:

Economic State Probability rA rp rz

Booming .2 30% 30% 2%

Normal .5 17 12 9

Recessionary .3 -5 -2 27

Calculate:

a. Expected rate of return for each investment

b. Standard deviation for each investment

c. Coefficient of variation for each investment

d. Based on your compuations which investment provides the best risk/return relationship?

e. If you could only purchase two of the investments which ones would be chosen to form a portfolio with the lowest risk? Please explain.