A6. Consider following portfolio: Stock A Stock B Stock C Stock D i) iii) iv) Portfolio Industry Weight (30%) (40%) (20%) (10%) Financial Technology Tobacco Utilities Expected Return + 16%p.a. 18% p.a. 12% p.a. 7% p.a. Calculate the expected return of above portfolio. Standard Derivation 30%p.a. 25%p.a. 15%p.a. 5%p.a. + K (1 mark) What is the purpose of diversification? Is it possible to diversify away all the risk? (3 marks) The expected return of Stock B (18 % p.a.) is higher than that of Stock A (16%p.a.), while the standard deviation of Stock B (25 % p.a.) is less than that of Stock A (30%p.a.). Does it violate the risk-return tradeoff principle? Justify your answer. (2 marks) Does the portfolio standard derivation equal to 22.5% p.a.? Justify your answer with appropriate assumption. (4 marks)

A6. Consider following portfolio: i) Calculate the expected return of above portfolio. (1 mark) ii) What is the purpose of diversification? Is it possible to diversify away all the risk? (3 marks) iii) The expected return of Stock B ( 18% p.a.) is higher than that of Stock A ( 16%p.a.), while the standard deviation of Stock B (25% p.a.) is less than that of Stock A (30\%p.a.). Does it violate the risk-return tradeoff principle? Justify your answer. (2 marks) iv) Does the portfolio standard derivation equal to 22.5% p.a.? Justify your answer with appropriate assumption. (4 marks)