(d).Mr. Corporate Frank is an investor contemplating to buy shares of X Limited and Y Limited. A securities analyst has provided the investor with the following data:

State of nature/ economy

Probability of state occurring

Return from X Share (%)

Return from Y Share (%)

A

0.1

-8

14

B

0.2

10

-4

C

0.4

8

6

D

0.2

5

15

E

0.1

-4

20

(a)Calculate the expected return and Standard deviation (Risk) for each share X and Y.

(4 marks)

(b)Calculate the covariance between the returns of share of the two securities X and Y and comment on your results.(2 marks)

(c)Calculate and interpret the Correlation Coefficient between the returns of share of the two securities X and Y.(1 marks)

(d)Frank has won Shs10 million in sports betting and he intends to spends 60% of the funds by investing in X securities and the balance (40%) the funds in Y securities.

Required: Calculate the expected return of the portfolio X&Y(2 marks)

(e) The term 'overtrading' is used to describe the condition of an enterprise which is increasing its sales revenue with insufficient working capital to support the increase.

(i).Describe any four movements in items in financial statements or accounting ratios that could indicate overtrading(2marks)

(ii).Describe any four actions a company suffering from overtrading could take to rectify its position, and explain the likely effect of the actions you propose