a) Define diversification and explain its effects on the systematic and unsystematic risk.

b)Raisya intends to buy the ordinary share of Telaga Jerneh Berhad. The possible returns for the companys share next year are as follows:

State of economy Probability of state of economy (Pri) Return if state of economy occurs (ri)

Boom 0.20 20

Growth 0.30 15

Normal 0.50 10

Required: i. Calculate the expected return of the share. (5 marks)

ii. Calculate the standard deviation of return of the share. (7 marks)

iii. Calculate the coefficient of variation of the share. (3 marks)

iv. If the share has an expected return 13.5 percent, the risk free rate is 3.7% and the market risk premium is 7.1%, What must the beta of this share be?