a). Gold Coast Securities Ltd is considering two investment opportunities, purchasing stocks or corporate bond. Consider the following information on the two investments: Probability Return on Stocks (%) Return on Bonds (%) 0.3 30 5 0.4 25 15 0.2 20 28 0.1 10 35 Required: a). Compute the following: i). Expected return of the two investments. ii).The standard deviation of the two investments. b). In order to minimize its exposure, Java Ltd has been thinking about diversifying along two options shown below: i). Portfolio I: invest 40,000 cedis in shares and 60,000 cedis in bonds. ii). Portfolio II: invest 55,000 cedis in shares and 45,000 cedis in bonds. Compute the expected return and standard deviation of each portfolio if the correlation coefficient of the return of the two investments is -0.35. c). Which portfolio would you recommend to Gold Coast based on risk and returns?

a). Gold Coast Securities Ltd is considering two investment opportunities, purchasing stocks or corporate bond. Consider the following information on the two investments: Probability Return on Stocks (%) Return on Bonds (%) 0.3 30 5 0.4 25 15 0.2 20 28 0.1 10 35 Required: a). Compute the following: i). Expected return of the two investments. ii).The standard deviation of the two investments. b). In order to minimize its exposure, Java Ltd has been thinking about diversifying along two options shown below: i). Portfolio I: invest 40,000 cedis in shares and 60,000 cedis in bonds. ii). Portfolio II: invest 55,000 cedis in shares and 45,000 cedis in bonds. Compute the expected return and standard deviation of each portfolio if the correlation coefficient of the return of the two investments is -0.35. c). Which portfolio would you recommend to Gold Coast based on risk and returns?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 20P

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