The following information is provided on the forecasted returns of two firms

SIA Airlines Ltd and HQ Furniture Ltd.

State of Return on Return on

The Economy Probability Tamaya Airlines   Guillow Furniture

Good             0.7                              14%                                  22%

Bad                 0.3                           6%                        3%

Required:

a. Compute the expected returns of Tamaya Airlines and Guillow Furniture.

b. Derive the standard deviation of returns of Tamaya Airlines and Guillow Furniture.

c. Calculate The covariance of returns between Tamaya Airlines and Guillow Furniture

d. Find the expected return on a portfolio that comprise 60% of funds in Tamaya Airlines and 40% of funds in Guillow Furniture.

e. Compute the standard deviation of returns of the portfolio.

f. Discuss THREE systematic risk factors facing major airlines today.

Answer rating: 100% (QA)

SOLUTION a The expected return of Tamaya ... View the full answer