Kamet is an investment fund that invests on the Ghana Stock Exchange. In recent times the...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Kamet is an investment fund that invests on the Ghana Stock Exchange. In recent times the economy has gone through four different cycles which analyst believe may be repeated in the years ahead. Kamet is reviewing its investment strategy and is looking for the best way to make good returns for its clients. The returns on three assets selected by Kamet are provided below: Business Cycle Normal Boom Near Recession Probability 0.30 0.40 Assets 0.10 ???? Percentage of funds invested Assets Unilever 40% 20% 20% 12% Recession You are required to: i. Compute the expected return and risk of each asset and advise Kamet as to which asset to invest more funds in on the basis of: a) expected return on the assets (4 marks) b) riskiness of the assets (Hint: compute the coefficient of variation of each asset and select the asset with the lowest coefficient of variation; CV) (4 marks) ii. Kamet has just informed you of three strategies (a), (b) and (c) that it wants to use. (a) In this strategy, Kamet will invest in the order of expected return hence the highest proportion of its funds is to be invested starting from the asset that yields the highest expected return irrespective of the risk level. The order is as follows: Assets Percentage of funds invested 1" Measured by Return 45% Starwin 40% 45% 1" Measured by Risk 50% 30% 50% Unilever 30% Measured by Return 35% (b). In this strategy, Kamet will invest in the order of riskiness of the assets hence the highest proportion of its funds is to be invested starting from the assets with the lowest risk irrespective of the expected return. The order is as follows. Anglogold 30% 40% 15% 30% 2nd Measured by Risk 30% Starwin 30% 3rd Measured by Return 20% Percentage of funds invested (c). In this strategy, Kamet will invest in the order shown below. 3 Measured by Risk 20% Page 2 of 5 Anglogold 40% Compute the portfolio expected return for each of the strategies (a), (b), and (c) and advise Kamet as to the best strategy to select on the basis of the expected return you have computed. (2 marks) Kamet is an investment fund that invests on the Ghana Stock Exchange. In recent times the economy has gone through four different cycles which analyst believe may be repeated in the years ahead. Kamet is reviewing its investment strategy and is looking for the best way to make good returns for its clients. The returns on three assets selected by Kamet are provided below: Business Cycle Normal Boom Near Recession Probability 0.30 0.40 Assets 0.10 ???? Percentage of funds invested Assets Unilever 40% 20% 20% 12% Recession You are required to: i. Compute the expected return and risk of each asset and advise Kamet as to which asset to invest more funds in on the basis of: a) expected return on the assets (4 marks) b) riskiness of the assets (Hint: compute the coefficient of variation of each asset and select the asset with the lowest coefficient of variation; CV) (4 marks) ii. Kamet has just informed you of three strategies (a), (b) and (c) that it wants to use. (a) In this strategy, Kamet will invest in the order of expected return hence the highest proportion of its funds is to be invested starting from the asset that yields the highest expected return irrespective of the risk level. The order is as follows: Assets Percentage of funds invested 1" Measured by Return 45% Starwin 40% 45% 1" Measured by Risk 50% 30% 50% Unilever 30% Measured by Return 35% (b). In this strategy, Kamet will invest in the order of riskiness of the assets hence the highest proportion of its funds is to be invested starting from the assets with the lowest risk irrespective of the expected return. The order is as follows. Anglogold 30% 40% 15% 30% 2nd Measured by Risk 30% Starwin 30% 3rd Measured by Return 20% Percentage of funds invested (c). In this strategy, Kamet will invest in the order shown below. 3 Measured by Risk 20% Page 2 of 5 Anglogold 40% Compute the portfolio expected return for each of the strategies (a), (b), and (c) and advise Kamet as to the best strategy to select on the basis of the expected return you have computed. (2 marks)
Expert Answer:
Answer rating: 100% (QA)
To compute the expected return and risk of each asset we need to multiply the probability of each bu... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0324592375
17th Edition
Authors: James D. Stice, Earl K. Stice, Fred Skousen
Posted Date:
Students also viewed these finance questions
-
Q1 -Hi Can you write 3 things or more you learned about this chapter Chapter9 Learning Objectives After reading and studying this chapter, you should be able to do the following: 9.1 Differentiate...
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
The following post-closing trial balance was prepared for Speedy Prints, Inc., but some balances were entered in the wrong column. Prepare a corrected post-closing trial balance. Assume all accounts...
-
When viscous dissipation is appreciable, the conservation of energy equation 4.6 in the text must take into account the rate at which mechanical energy is irreversibly converted to thermal energy due...
-
When you unplug a coffee maker that plugs into the utility outlet of your car, you notice a spark. Worried that the coffee maker might be broken, you take it apart and find that the heating element...
-
Consider two identically distributed and independent random variables \(X_{1}\) and \(X_{2}\) with common probability density function \(p_{X}(x)\). Show that the probability density function of the...
-
Worldwide United Corporation (WUC), a U.S. taxpayer, manufactures and sells products through a network of foreign branches and wholly-owned foreign subsidiaries. Relevant information for these...
-
22. Assume that the following current asset and current liability accounts apply to the Harden Company for the years 2021 and 2022 (note: the ??? in the table is a figure that you must determine)....
-
Mirza Manufacturing makes four electronic products, each of which comprises three main materials: magnet, wiring, and casing. The products are shipped to three distribution centers in North America,...
-
Following are the May 2015 merchandising transactions for the Taber Corn Chip Company. Taber Corn Chip Company uses a perpetual inventory system. The terms of all sales to customers are 3/15 n/45...
-
You are the chief investment strategist for the Tiger Emerging Market Fund, which has approximately 20 percent of its assets invested in the Buenos Aires Bolsa. It is January 2001 and Argentina will...
-
The chief economist of the Lusitania country fund believes that the firm will be better served in the long term by using a composite forecasting model combining the forward rate and the Third Eye...
-
Sonys royalties payment. The U.S. sales subsidiary of the Japanese consumer electronics giant Sony Inc. is committed to paying a fixed lump sum of money (royalties) set at 2. 5 percent of its U.S....
-
Currency risk in the travel industry. Ulysses Travel Ltd (UTL) is a Boston-based travel operator that specializes in tour and holiday packages with destinations in Spain, Italy, and Greece where...
-
Dinky Toys cross-border acquisition. Dinky Toys, Inc. (DTI) of Pennsylvania has just purchased a Thai company that manufactures plastic beams and sockets for childrens construction toys. The purchase...
-
Suppose that a firm begins at time t = 0 with a capital stock of K(0) = 500,000 pesos and, in addition to replacing any depreciated capital, is planning to invest in new capital at the rate I(t) =...
-
Find the volume of the described solid S. A frustum of a right circular cone with height h, lower base radius R, and top radius r -r- --R
-
What rules govern the netting of deferred tax assets and deferred tax liabilities?
-
Uptown Builders Company commenced doing business in January 2011. Construction activities for the year 2011 are summarized in the following table. The company is your client. The president has asked...
-
What is the most common event that causes the inventory account to increase? decrease?
-
Summer and winter constellations are different because (a) of the spin of Earth about its polar axis. (b) the night sky faces in opposite directions in summer and winter. (c) of the tilt of Earths...
-
The property of a star that relates to the amount of energy per unit time it is producing is its (a) luminosity. (b) apparent brightness. (c) color. (d) volume. (e) mass.
-
The longest-lived stars are those of (a) low mass. (b) high mass. (c) intermediate mass. (d) infinite mass.
Study smarter with the SolutionInn App