With reference to the information given above, Discuss the relationship between risk and return of the individual securities. Demonstrate the meaning and advantages of diversification by constructing a portfolio consisting of equal investments in the High-Tech Co. and the Counter- Cyclical Co. Explain your idea and show your work clearly. Perform calculations or quantitative analyses to support your answers where necessary.

Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter15: Capital Investment Analysis
Section: Chapter Questions
Problem 15.1.1MBA
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With reference to the information given above,

Discuss the relationship between risk and return of the individual securities.

Demonstrate the meaning and advantages of diversification by constructing a portfolio consisting of equal investments in the High-Tech Co. and the Counter- Cyclical Co. Explain your idea and show your work clearly.

Perform calculations or quantitative analyses to support your answers where necessary.

Expected Rate of Return
Counter-
Utility
Treasury Bill Index Fund Company
High-Tech
Company
Cyclical
Company
Scenario
Recession
Probability
20%
5%
-10%
6%
-25%
20%
Near Recession
20%
5%
-6%
7%
-20%
16%
Normal
30%
5%
12%
9%
15%
12%
Near Boom
10%
5%
15%
11%
25%
-9%
Вoom
20%
5%
20%
14%
35%
-20%
Expected
Return
5%
5.9%
9.2%
5%
5.9%
Standard
Deviation
0%
11.94%
2.82%
24.19%
15.69%
Transcribed Image Text:Expected Rate of Return Counter- Utility Treasury Bill Index Fund Company High-Tech Company Cyclical Company Scenario Recession Probability 20% 5% -10% 6% -25% 20% Near Recession 20% 5% -6% 7% -20% 16% Normal 30% 5% 12% 9% 15% 12% Near Boom 10% 5% 15% 11% 25% -9% Вoom 20% 5% 20% 14% 35% -20% Expected Return 5% 5.9% 9.2% 5% 5.9% Standard Deviation 0% 11.94% 2.82% 24.19% 15.69%
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