Simon Chong is considering investing his money in two companies' shares. After receiving advice from his...

 

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Simon Chong is considering investing his money in two companies' shares. After receiving advice from his broker, Amanda Chin, he shortlists two shares, Stock ASTRO and Stock TM, as possible share investments. Amanda Chin has provided the following data for him. He is looking for you to: Show all your working steps. State of Economy Boom Normal Recession Probability of Occurrence Rate of Return Stock ASTRO (%) Rate of Return Stock TM (%) 0.20 15 25 0.50 8 14 0.30 9 -15 Required: i. Compute the expected return and standard deviation of each share. ii. Calculate the covariance and correlation between the two shares. (10 marks) (5 marks) 111. iv. Compute the expected return and standard deviation of a portfolio consisting of 45,000 shares of ASTRO, currently selling at RM2 each, and 95,000 shares of TM, currently selling at RM3.50 each. (7 marks) Simon Chong is a risk-averse investor and could invest his money in either Stock ASTRO or Stock TM only, or even the portfolio in part (iii) above. Which alternative should Simon Chong choose? Justify your answer. (3 marks) Simon Chong is considering investing his money in two companies' shares. After receiving advice from his broker, Amanda Chin, he shortlists two shares, Stock ASTRO and Stock TM, as possible share investments. Amanda Chin has provided the following data for him. He is looking for you to: Show all your working steps. State of Economy Boom Normal Recession Probability of Occurrence Rate of Return Stock ASTRO (%) Rate of Return Stock TM (%) 0.20 15 25 0.50 8 14 0.30 9 -15 Required: i. Compute the expected return and standard deviation of each share. ii. Calculate the covariance and correlation between the two shares. (10 marks) (5 marks) 111. iv. Compute the expected return and standard deviation of a portfolio consisting of 45,000 shares of ASTRO, currently selling at RM2 each, and 95,000 shares of TM, currently selling at RM3.50 each. (7 marks) Simon Chong is a risk-averse investor and could invest his money in either Stock ASTRO or Stock TM only, or even the portfolio in part (iii) above. Which alternative should Simon Chong choose? Justify your answer. (3 marks)