Arifah is considering letting go one of her investment. The followings are some information related to her portfolio:

 

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Table A: Acquisition Info Acquisition price 6-month Average return St. deviation Units owned Table B: Portfolio-related info Covariance between A and B Covariance between A and C Covariance between B and C Stock A RM5 per unit 3% 6% 1000 time Good Moderate Bad 20 15 -10 Table C: Reports on Potential Return obtained from Stock Analyst Firm Economic condition in a month Probability 0.2 0.5 0.3 Stock B RM2 per unit 2% 1.5% 500 Potential return Stock A 10% 7% 3% e) What will be the new portfolio risk for Arifah? Stock C RM10 per unit 2.5% 3% 400 Stock B 5% 2% -3% Stock C 6% 5% 1% a) Using the historical data as indicator, calculate Arifah portfolio return (hint: assume Arifah is using the weigh based on acquisition information) (4 marks) (7 marks) b) What would be her existing portfolio risk? c) If Arifah is to decide solely on the expected return data, which stock should she let go? (4 marks) d) Based on the decision made in question c), what will be the expected portfolio return for Arifah? (hint: assume Arifah is using the weigh based on acquisition information) (3 marks) (10 marks) f) Provide simple comment on Arifah's decision by comparing her portfolio return and risk. Table A: Acquisition Info Acquisition price 6-month Average return St. deviation Units owned Table B: Portfolio-related info Covariance between A and B Covariance between A and C Covariance between B and C Stock A RM5 per unit 3% 6% 1000 time Good Moderate Bad 20 15 -10 Table C: Reports on Potential Return obtained from Stock Analyst Firm Economic condition in a month Probability 0.2 0.5 0.3 Stock B RM2 per unit 2% 1.5% 500 Potential return Stock A 10% 7% 3% e) What will be the new portfolio risk for Arifah? Stock C RM10 per unit 2.5% 3% 400 Stock B 5% 2% -3% Stock C 6% 5% 1% a) Using the historical data as indicator, calculate Arifah portfolio return (hint: assume Arifah is using the weigh based on acquisition information) (4 marks) (7 marks) b) What would be her existing portfolio risk? c) If Arifah is to decide solely on the expected return data, which stock should she let go? (4 marks) d) Based on the decision made in question c), what will be the expected portfolio return for Arifah? (hint: assume Arifah is using the weigh based on acquisition information) (3 marks) (10 marks) f) Provide simple comment on Arifah's decision by comparing her portfolio return and risk.

Answer rating: 100% (QA)

Lets address these questions step by step First we need to find the weight of each stock in Arifahs portfolio based on the acquisition information provided To calculate the weights of the stocks we us... View the full answer