Suppose your estimates of the possible one year returns from investing in the ordinary shares of Nestle Pakistan Ltd Ltd were as follows:

probability of occurrence	0.1	0.2	0.4	0.2	0.1
possible returns	-15%	5%	20%	35%	50%

The following information is also available about the portfolio investment

	value	expected return	standard deviation	beta
share nestle ltd	50	?	?	0.7
share colgate ltd	50	20%	0.13	0.6

Required:

a) Calculate expected return and standard deviation for Nestle Pakistan Ltd.?

b)Calculate portfolio return and standard deviation for the above portfolio if the covariance between the two shares is 0.04.

c) Calculate the portfolio beta. What does it show?

Answer rating: 100% (QA)

a To calculate the expected return and standard deviation for Nestle Pakistan Ltd well use the given estimates of possible returns and their respectiv... View the full answer