The management of Gawain plc is evaluating two projects whose returns depend on the future state of
Question:
Probability __________ IRRA(%) ___________ IRRB(%)
0.3...............................27 ...........................35
0.4...............................18............................15
0.3.................................5...........................20
The project (or projects) accepted would double the size of Gawain.
Required
(a) Explain how a portfolio should be constructed to produce an expected return of 20 percent.
(b) Calculate the correlation between projects A and B, and assess the degree of risk of the portfolio in (a).
(c) Gawain's existing activities have a standard deviation of 10 per cent. How does the addition of the portfolio analysed in (a) and (b) affect risk?
Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...
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a Project A Expected return 03 027 04 018 03 005 0081 0072 0015 0168 ie 168 Project B Expected retur...View the full answer
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Related Book For 
Corporate Finance and Investment decisions and strategies
ISBN: 978-1292064062
8th edition
Authors: Richard Pike, Bill Neale, Philip Linsley
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