Edit QUESTION FOUR Expected Return Standard Deviation MPS Asset A 14% Tools You have just graduated...

Transcribed Image Text:

Edit QUESTION FOUR Expected Return Standard Deviation MPS Asset A 14% Tools You have just graduated from National Institute of Public Administration, and you have been tasked by the Chief Executive Officer at your company to help in investment analysis. You have been provided with the following information in the table below. Further you have been informed that the total investment funds are K100,000 of which K40,000 is earmarked to be invested in Asset A. 22% Ⓒ 3 Asset B Mobile View 11% 55% 25 a) Calculate the expected return of the portfolio. (3 Marks) b) If the covariance of the two assets is 0.3, calculate the risk of the portfolio. (6 Marks) c) Calculate the coefficient of variation of each Asset and recommend which asset the company should invest in if they are mutually exclusive. Give a reason. (3 marks) d) Investors are said to be rational and risk averse. What does this statement mean? (2 Marks) e) There is a relationship between risk and return. Explain this relationship. (3 marks) ZAFFICO's shares have a beta of 1.3 and the excess return the Lusaka Stock Exchange is 16.5%. The Central bank has just announced that expected return on Government securities is averaging 7%. Calculate the required return on ZAFFICO's shares. (3 marks) 87% 11:19 ९४ X Share Edit QUESTION FOUR Expected Return Standard Deviation MPS Asset A 14% Tools You have just graduated from National Institute of Public Administration, and you have been tasked by the Chief Executive Officer at your company to help in investment analysis. You have been provided with the following information in the table below. Further you have been informed that the total investment funds are K100,000 of which K40,000 is earmarked to be invested in Asset A. 22% Ⓒ 3 Asset B Mobile View 11% 55% 25 a) Calculate the expected return of the portfolio. (3 Marks) b) If the covariance of the two assets is 0.3, calculate the risk of the portfolio. (6 Marks) c) Calculate the coefficient of variation of each Asset and recommend which asset the company should invest in if they are mutually exclusive. Give a reason. (3 marks) d) Investors are said to be rational and risk averse. What does this statement mean? (2 Marks) e) There is a relationship between risk and return. Explain this relationship. (3 marks) ZAFFICO's shares have a beta of 1.3 and the excess return the Lusaka Stock Exchange is 16.5%. The Central bank has just announced that expected return on Government securities is averaging 7%. Calculate the required return on ZAFFICO's shares. (3 marks) 87% 11:19 ९४ X Share

Answer rating: 100% (QA)

a Calculate the expected return of the portfolio Since K40000 is already earmarked for Asset Athe remaining K60000 can be invested in Asset BTherefore... View the full answer