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Arifah is considering letting go one of her investment. The followings are some information related to her portfolio: Table A: Acquisition Info Acquisition price 6-month
Arifah is considering letting go one of her investment. The followings are some information related to her portfolio: Table A: Acquisition Info Acquisition price 6-month Average return St. deviation Units owned Stock A RM5 per unit 3% 6% 1000 Stock B RM2 per unit 2% 1.5% 500 Stock C RM10 per unit 2.5% 3% 400 Table B: Portfolio-related info Covariance between A and B Covariance between A and C Covariance between B and C 20 15 -10 Table C: Reports on Potential Return obtained from Stock Analyst Firm Economic condition in a month Probability Potential return time Stock A Stock B Good 0.2 10% 5% Moderate 0.5 7% 2% Bad 0.3 3% -3% Stock C 6% 5% 1% a) Using the historical data as indicator, calculate Arifah portfolio return (hint: assume Arifah is using the weigh based on acquisition information) (4 marks) b) What would be her existing portfolio risk? (7 marks) c) If Arifah is to decide solely on the expected return data, which stock should she let go? (4 marks) d) Based on the decision made in question c), what will be the expected portfolio return for Arifah? (hint: assume Arifah is using the weigh based on acquisition information) (3 marks) e) What will be the new portfolio risk for Arifah? (10 marks) f) Provide simple comment on Arifah's decision by comparing her portfolio return and risk. (2 marks)
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