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Use the information below to answer the following questions. You are considering the following investments in the table below and have mapped out some potential
Use the information below to answer the following questions. You are considering the following investments in the table below and have mapped out some potential returns for the next year based on different economic scenarios: Economic Probability of Expected Return (%) Scenarios occurring (%) BHP Group CSL Limited Goodman Group (BHP) (CsL) (GMG) Slowing 25 9 8 8 Steady 25 10 12 10 Moderate 30 13 16 12 expansion Strong expansion | 20 16 20 14 Note whilst these companies might in reality pay dividends etc, work off the expected return information provided in the table above. Questions 1) Calculate the expected return for each asset. (1.5 marks) 2) Calculate the risk and Sharpe ratio for each asset (1.5 marks) 3) Rank each investment for expected return and risk (1 = highest ) and comment on the overall risk and return relationship that you observe. (1 marks) 4) Create a portfolio where you allocate each of the assets above a weight between 15% - 70% (no shorting!) the total portfolio % must equal 100%. Calculate the expected return confribution from each of your allocated weightings and the expected return for the overall total portfolio (2 marks) 5) Briefly explain why (and how) there might be a benefit in combining the assets into the portfolio you've chosen above instead of undertaking only one individual investment? (2 marks)
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