3G,l| 84%7:53 PMDone24Mini ProjectAssume that after completion of your MBA you have started working as a financialplanner at JS Capital Limited. In a second week of Job you have got assignment toinvest Rupees 100,000 for a client. Because the funds are to be invested in a businessat the end of 1 year, you have been instructed to plan for a 1-year holding period.Moreover, your manager has restricted you to the investment alternatives in thefollowing table, shown with their probabilities and associated outcomes. (For now,disregard the items at the bottom of the data; you will fill in the blanks later.)Estimated rate of returnsT-Pak MarketState of theProbabilityBillsNescom Nawab PK_Steel portfolioRecession0.13%-14.2512.251.75-9.75Below average0.23%-4.755.25-8.25-2.75average0.43%6.25-0.50.253.75Above average0.23%13.75-2.519.2511.25Вoom0.13%21.25-1011.7517.75Expectred ReturnsSt. Deviation0%CVBetaJS Capital staff has estimated the probability values for the state of the economy, andalso estimated the corresponding rate of return on each alternative under each state ofthe economy. Nescom. is technology firm, Nawab collects past-due debts, and PK_Steelmanufactures steel products. JS capital also maintains a "market portfolio" that owns amarket-weighted fraction of all publicly traded stocks on Pakistan exchange market; youcan invest in that portfolio and thus obtain average stock market results. Given thesituation described, answer the following questions:1. Why is the T-bill's return independent of the state of the economy? Do T-billspromise a completely risk-free return? Explain?2. Why are Nescom returns expected to move with the economy, whereas Nawab'sare expected to move counter to the economy?Calculate the expected rate of return on each alternative.Select: 87 ould recognize that basing a decision solely on expected returns isiate only for risk neutral individuals. Your client is risk-averse, theriskiness of each alternative is an important aspect of the decision. One possibleAa "| 83%7:53 PMDone244. You should recognize that basing a decision solely on expected returns isappropriate only for risk neutral individuals. Your client is risk-averse, theriskiness of each alternative is an important aspect of the decision. One possiblemeasure of risk is the standard deviation of returns. Calculate this value foreach alternative.5. What type of risk is measured by the standard deviation?6. Suppose you suddenly remembered that the coefficient of variation (CV) isgenerally regarded as being a better measure of stand-alone risk than thestandard deviation when the alternatives being considered have widely differingexpected returns. Calculate the CVs and interpret the results.7. Suppose you created a two-stock portfolio by investing Rupees 50,000 inNescom and Rupees 50,000 in Nawab. Now Calculate the expected return ofportfolio, the standard deviation of portfolio and the coefficient of variation ofportfolio. Also write about how the riskiness of this two-stock portfoliocompares with the riskiness of the individual stocks if they were held in isolation?8. Assume that the expected rates of return and the beta coefficients of thealternatives supplied by an independent analyst are as follows:Estimated rate ofSecurityreturnsBetaNescom5%1.5Market41Pk_Steel3.50.75T_Bills3Nawab1-0.6What is a beta coefficient, and how are betas used in risk analysis?Do the expected returns appear to be related to each alternative's market risk?Is it possible to choose among the alternatives on the basis of the informationdeveloped thus far?9. Assumes that the risk-free rate is 3.0%, and risk premium is expected return onmarket portfolio less risk.Write out the securityline (SML) equation; useto calculate therequired rate of return on each alternative?Full text: 5287the expected rates of return compare with the required rates ofreturn? Identify the undervalued companies?Aaill

Question

3G,l| 84%7:53 PMDone24Mini ProjectAssume that after completion of your MBA you have started working as a financialplanner at JS Capital Limited. In a second week of Job you have got assignment toinvest Rupees 100,000 for a client. Because the funds are to be invested in a businessat the end of 1 year, you have been instructed to plan for a 1-year holding period.Moreover, your manager has restricted you to the investment alternatives in thefollowing table, shown with their probabilities and associated outcomes. (For now,disregard the items at the bottom of the data; you will fill in the blanks later.)Estimated rate of returnsT-Pak MarketState of theProbabilityBillsNescom Nawab PK_Steel portfolioRecession0.13%-14.2512.251.75-9.75Below average0.23%-4.755.25-8.25-2.75average0.43%6.25-0.50.253.75Above average0.23%13.75-2.519.2511.25Вoom0.13%21.25-1011.7517.75Expectred ReturnsSt. Deviation0%CVBetaJS Capital staff has estimated the probability values for the state of the economy, andalso estimated the corresponding rate of return on each alternative under each state ofthe economy. Nescom. is technology firm, Nawab collects past-due debts, and PK_Steelmanufactures steel products. JS capital also maintains a &#34;market portfolio&#34; that owns amarket-weighted fraction of all publicly traded stocks on Pakistan exchange market; youcan invest in that portfolio and thus obtain average stock market results. Given thesituation described, answer the following questions:1. Why is the T-bill's return independent of the state of the economy? Do T-billspromise a completely risk-free return? Explain?2. Why are Nescom returns expected to move with the economy, whereas Nawab'sare expected to move counter to the economy?Calculate the expected rate of return on each alternative.Select: 87 ould recognize that basing a decision solely on expected returns isiate only for risk neutral individuals. Your client is risk-averse, theriskiness of each alternative is an important aspect of the decision. One possibleAa &#34;| 83%7:53 PMDone244. You should recognize that basing a decision solely on expected returns isappropriate only for risk neutral individuals. Your client is risk-averse, theriskiness of each alternative is an important aspect of the decision. One possiblemeasure of risk is the standard deviation of returns. Calculate this value foreach alternative.5. What type of risk is measured by the standard deviation?6. Suppose you suddenly remembered that the coefficient of variation (CV) isgenerally regarded as being a better measure of stand-alone risk than thestandard deviation when the alternatives being considered have widely differingexpected returns. Calculate the CVs and interpret the results.7. Suppose you created a two-stock portfolio by investing Rupees 50,000 inNescom and Rupees 50,000 in Nawab. Now Calculate the expected return ofportfolio, the standard deviation of portfolio and the coefficient of variation ofportfolio. Also write about how the riskiness of this two-stock portfoliocompares with the riskiness of the individual stocks if they were held in isolation?8. Assume that the expected rates of return and the beta coefficients of thealternatives supplied by an independent analyst are as follows:Estimated rate ofSecurityreturnsBetaNescom5%1.5Market41Pk_Steel3.50.75T_Bills3Nawab1-0.6What is a beta coefficient, and how are betas used in risk analysis?Do the expected returns appear to be related to each alternative's market risk?Is it possible to choose among the alternatives on the basis of the informationdeveloped thus far?9. Assumes that the risk-free rate is 3.0%, and risk premium is expected return onmarket portfolio less risk.Write out the securityline (SML) equation; useto calculate therequired rate of return on each alternative?Full text: 5287the expected rates of return compare with the required rates ofreturn? Identify the undervalued companies?Aaill

Accepted Answer

1. T-bills are short-term government securities, sold by the central bank on behalf of the…