18. Assume that your father has just won a lottery for Tshs 10 million. Given the awareness created by the promotion campaign being undertaken by the CMSA and the Dar es Salaam Stock he is considering placing the entire funds either in shares of the Tanzania Tea Packers (TATEPA) or in shares of Tanzania Cigarettes Company (TCC). Knowing that you are a business student in the Faculty of Commerce and Management at the University of Dar es Salaam n MBA student, he trusts you and has been using you as his financial adviser. When he tells you about this plan you suggest two alternative investment approaches. (1) Invest some of the money in TATEPA and some in TCC to give him at least a small degree of diversification. The proportions you suggest are as given below Portfolio Proportion of portfolio invested in (%) TATEPA TCC 25 75 2 75 25 90 3 10 (2) Invest the entire sum in a broad range of investments to reduce unsystematic risk. This portfolio is expected to produce a return of 23 percent per year with a standard deviation of 6 percent. To assist your father make a final decision, you do some research and come up with forecasts for shares in TATEPA and TCC given various states of the economy as given below: 18. Assume that your father has just won a lottery for Tshs 10 million. Given the awareness created by the promotion campaign being undertaken by the CMSA and the Dar es Salaam Stock he is considering placing the entire funds either in shares of the Tanzania Tea Packers (TATEPA) or in shares of Tanzania Cigarettes Company (TCC). Knowing that you are a business student in the Faculty of Commerce and Management at the University of Dar es Salaam n MBA student, he trusts you and has been using you as his financial adviser. When he tells you about this plan you suggest two alternative investment approaches. (0) Invest some of the money in TATEPA and some in TCC to give him at least a small degree of diversification. The proportions you suggest are as given below Portfolio Proportion of portfolio invested in (%) TATEPA TCC 1 25 75 2 75 25 3 90 10 (2) Invest the entire sum in a broad range of investments to reduce unsystematic risk. This portfolio is expected to produce a return of 23 percent per year with a standard deviation of 6 percent. To assist your father make a final decision, you do some research and come up with forecasts for shares in TATEPA and TCC given various states of the economy as given below: State of the economy Probability Returns on shares in (%) TATEPA TCC Recession 0.25 10 15 Growth 0.50 55 Boom 0.25 30 -10 Required Compare the risk and return of the alternatives (including your father's original intention of putting all the money into either TATEPA or TCC) (ii) On a graph draw an estimated portfolio risk-return line based on the plot points for two-share portfolio and describe the efficient and inefficient region. (Hint: there is no requirement to calculate the minimum risk portfolio). (iii) Describe the efficient and inefficient region i no indiffor ho animal nortfolin 20
