The table below shows annual returns for Orkid Berhad and one of its major competitors, Bunga Raya
Question:
The table below shows annual returns for Orkid Berhad and one of its major competitors, Bunga Raya Berhad. Encik Ghazali is an investor who invests in both Orkid Berhad and Bunga Raya Berhad. His portfolio consists of 60% investment in Orkid Berhad and 40% in Bunga Raya Berhad. The portfolio’s return is simply a weighted average of the returns of the stocks in the portfolio.
YEAR | ORKID BERHAD | BUNGA RAYA BERHAD |
2018 | 16.20% | 14.30% |
2019 | 76.30% | 73.20% |
2020 | 38.60% | 26.00% |
2021 | 91.60% | 32.50% |
(a) Calculate the portfolio’s return each year from year 2018 to year 2021.
(b) Calculate the standard deviation of Orkid Berhad, Bunga Raya Berhad and the overall portfolio.
(c) On a stand-alone basis, explain which of the two securities is riskier. Justify your answer.
(d) Explain how the concept of diversification helps Encik Ghazali to lower the overall risk of his portfolio.
Fraud examination
ISBN: 978-0538470841
4th edition
Authors: Steve Albrecht, Chad Albrecht, Conan Albrecht, Mark zimbelma