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Share A and Share B have the following returns under different states of the economy. State of economy Recession Normal Boom Probability 0.2 0.5 0.3 Share A (Returns) (10%) 13% 25% Calculate the following: i) The expected rate of returns for both shares. ii) The standard deviation for both shares. Share B (Returns) 11% 7% 8% (4 marks) (6 marks) iii) On a stand-alone basis, discuss which share out of the two is riskier. (2 marks) b) If given that the correlation between the two shares above is -0.7455, comment on the overall portfolio risk and on the level of diversification. (8 marks) c) Explain unsystematic risk and elaborate ONE way to reduce this type of risk (diagrams are not necessary). (5 marks) Share A and Share B have the following returns under different states of the economy. State of economy Recession Normal Boom Probability 0.2 0.5 0.3 Share A (Returns) (10%) 13% 25% Calculate the following: i) The expected rate of returns for both shares. ii) The standard deviation for both shares. Share B (Returns) 11% 7% 8% (4 marks) (6 marks) iii) On a stand-alone basis, discuss which share out of the two is riskier. (2 marks) b) If given that the correlation between the two shares above is -0.7455, comment on the overall portfolio risk and on the level of diversification. (8 marks) c) Explain unsystematic risk and elaborate ONE way to reduce this type of risk (diagrams are not necessary). (5 marks)
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i The expected rate of return for Share A is 10 and for Share B is 8 ii The s... View the full answer
Related Book For
Fundamentals of Physics
ISBN: 978-0471758013
8th Extended edition
Authors: Jearl Walker, Halliday Resnick
Posted Date:
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