2.2. An investor is thinking about investing in a portfolio consisting of 60% shares in Lycia Ltd and 40% shares in Trentco (Pty) Ltd. The investor collected the following information about these shares:

Investment scenarios

Probability

Expected return Lycia shares

Expected return Trentco shares

Pessimistic Normal Optimistic

0.10 8.00% 0.60 16.00% 0.30 19.00%

12.00% 18.00% 24.00%

From the information gathered, the investor calculated the following portfolio variables:

Expected return 16.00% 19.00% Standard deviation 3.00% 4.00%

The risk-free rate is 6%.

The market return is 15% and the market risk is 5%.

2.2.2. Use the results of your calculations above to demonstrate to the investor how investing in this two-share portfolio compares with other investments in the market and what the investors decision should be.

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