A Europium plc has been specaily formed to undertake two investment opties. The risk and retum...
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A Europium plc has been specaily formed to undertake two investment opties. The risk and retum characteristics of the two projects are shown below: A Expected return Risk 12% 3% 7% 20% Europium ple plans to invest 80% of its available funds in Project A and 20% in B. The directors believe that the correlation coefficient between the returns of the projects is +0.1. Required: (a) Calculate the returns from the proposed portfolio of Projects A and B. (b) Calculate the risk of the portfolio. (c) Comment on your calculations in part (b) in the context of the risk-reducing effects of diversification. (d) Suppose the correlation coefficient between A and B was -1.0. How should Europium plc invest its funds in order to obtain a zero-risk portfolio? A Europium plc has been specaily formed to undertake two investment opties. The risk and retum characteristics of the two projects are shown below: A Expected return Risk 12% 3% 7% 20% Europium ple plans to invest 80% of its available funds in Project A and 20% in B. The directors believe that the correlation coefficient between the returns of the projects is +0.1. Required: (a) Calculate the returns from the proposed portfolio of Projects A and B. (b) Calculate the risk of the portfolio. (c) Comment on your calculations in part (b) in the context of the risk-reducing effects of diversification. (d) Suppose the correlation coefficient between A and B was -1.0. How should Europium plc invest its funds in order to obtain a zero-risk portfolio?
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Portfolio Analysis for Europium plc Given Project A Expected return Ra 12 Risk a 20 Project B Expected return Rb 3 Risk b 7 Investment proportion Proj... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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