a) Discuss the benefit of portfolio diversification. Explain how to achieve diversification benefit. An investor buys 1
Question:
a) Discuss the benefit of portfolio diversification. Explain how to achieve diversification benefit. An investor buys 1 share of ABC Ltd at the price of $32 on December 1, 2019. The firm is not expected to pay any dividends. Consider the following three possible scenarios for the share price on December 1, 2020: $50 with a probability of 20% $35 with a probability of 65% $23 with a probability of 15%
b) Calculate the expected return for holding the share for a year.
c) Calculate the variance of return and standard deviation of return.
d) On December 1, 2020, the share is worth $38 and the investor just received a dividend of $3. Calculate the total holding period return and capital gains return over the one-year period.
e) Explain the difference between expected return and realized return.
Multinational Business Finance
ISBN: 978-0132743464
13th edition
Authors: David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett