500 words). (2.5 Marks) b. The following statistics and estimates were compiled by Big Moon Bank regarding a proposed new branch office and the bank itself: Branch office expected return= 15% Standard deviation of branch return= 8% Existing bank’s expected return= 10% Standard deviation of existing bank’s return= 5% Branch asset value as a percentage of total bank assets= 16% Correlation of net cash flows for branch and bank as a whole= +0.48 What will happen to Big Moon's total expected return and overall risk if the proposed new branch project is adopted? (2.5 Marks)
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