Question: Question 1 a) Define diversification and explain its effects on the systematic and unsystematic risk. (5 marks) b) Raisya intends to buy the ordinary share

Question 1 a) Define diversification and explain its effects on the systematic and unsystematic risk. (5 marks) b) Raisya intends to buy the ordinary share of Telaga Jerneh Berhad. The possible returns for the company's share next year are as follows: State of Probability of Return if state of economy state of economy economy occurs 0.20 0.30 0.50 10% Boom 20% Growth 15% Normal Required: i Calculate the expected return of the share. (5 marks) ii. Calculate the standard deviation of return of the share. (7 marks) iii. Calculate the coefficient of variation of the share. (3 marks) iv. If the share has an expected return 13.5 percent, the risk free rate is 3.7% and the market risk premium is 7.1%, What must the beta of this share be? (5 marks) (TOTAL: 25 MARKS

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