a) The standard deviation of a portfolio's return cannot be reduced to zero by holding all the securities in the market. True or false? Explain. (2 mark)

An investor buys 1 share of ABC Ltd at the price of $32 on December 1, 2019. The firm is not expected to pay any dividends. Consider the following three possible scenarios for the share price on December 1, 2020:

• $50 with a probability of 30%
• $35 with a probability of 60%
• $23 with a probability of 10%

b) Calculate the expected return for holding the share for a year. (2 mark)

c) Calculate the variance of return and standard deviation of return. (2 marks)

d) On December 1, 2020, the share is worth $36 and the investor just received a dividend of $2.50. Calculate the total holding period return and capital gains return over the one-year period. (2 marks)

e) Explain the difference between expected return and realised return. (2 marks)