QuestionQ1: Risk and Reward (7 Marks) A- Ahmed wants to invest in one of these stocks A, B and C, which stock will he choose knowing that Ahmed is a risk-averse investor? \begin{tabular}{|l|l|l|l|} \hline Probability & \multicolumn{1}{|c|}{\begin{tabular}{c} Rate of return \\ A \end{tabular}} & \begin{tabular}{c} Rate of return \\ B \end{tabular} & \begin{tabular}{c} Rate of return \\ C \end{tabular} \\ \hline 0.15 & 0.02 & 0.20 & 0.20 \\ \hline 0.5 & 0.17 & 0.09 & 0.10 \\ \hline 0.35 & 0.08 & 0.02 & 0.08 \\ \hline \end{tabular}
B-Instead of investing in just one stock, Ahmed decided to invest \$10,000 in a portfolio, and was confused between two portfolios X and Y .
Portfolio $X$ consists of shares $A$ and $B$, (where the investment in stock $A$ is $\$ 2,500$ ) Portfolio Y consists of shares A and C, (where the investment in stock A is $\$ 4,000$ ) Knowing that: The correlation coefficient between A and $\mathrm{B}=0.95$ The correlation coefficient between A and $\mathrm{C}=-1.0$ The correlation coefficient between B and $\mathrm{C}=-0.5$ Which Portfolio should he choose? Explain why?