Mrs Fosu, a successful Sole Proprietor is cash-riched and wants to invest some of her money into some classes of stocks on the Ghana Stock Exchange. Being an MBA student, she did her own analysis and decided to invest in two of the three stocks with the following financial history.

STOCKA

Beginning Price ()

55.0

Year 2015 2016 2017

T T

End Price ()

58.0 59.5 65.4

Dividend Paid (c)

3.2 2.8 3.5

54.0

56.0

STOCK B

Year 2015 2016 2017

Beginning Price ()

80.0 62.0 65.0

End Price ()

68.0 76.5 71.2

Dividend Paid ()

4.0 3.5 3.0

STOCK C

Dividend Paid ()

2.1

Year 2015 2016 2017

Beginning Price ()

47.0 51.0 50.5

End Price ()

52.0 55.5 56.4

2.0

5.1 (a) Calculate the mean return and standard deviation of each of the stocks to the nearest percentage whole number. (6 marks)

(b) Which of these stocks is more risky? (2 marks)

(c) The investor estimates a correlation of 0.22, -0.78 and -0.51 respectively between stocks A&B, A&C and B&C.

(i) Calculate the expected return and standard deviation of the portfolio (X) by combining stocks A and B if the invested put 50% of the investment in stock A and the remaining in stock B. (2 marks)

(ii) Calculate the expected return and standard deviation of the portfolio (Y) by combining stocks A and C if the invested put 50% of the investment in stock A and the remaining in stock C. (2 marks)

(iii) Calculate the expected return and standard deviation of the portfolio (Z) by combining stocks B and C if the invested put 50% of the investment in stock B and

the remaining in stock C. (2 marks)

d) Which of the portfolios (X, Y or Z) should the investor select and why? (2 marks)

e) Distinguish between diversifiable and non-diversifiable risks. Which of these risks is rewardable and why? (4 marks)

Year 2015 2016 2017 Year 2015 2016 2017 Year 2015 2016 2017 STOCK A Beginning Price () 55.0 54.0 56.0 STOCK B Beginning Price () 80.0 62.0 65.0 STOCK C Beginning Price (e) 47.0 51.0 50.5 End Price () 58.0 59.5 65.4 End Price () 68.0 76.5 71.2 El Price (4) 52.0 55.5 26.4 Dividend Paid (e) 3.2 2.8 3.5 Dividend Paid (6) 4.0 3.5 3.0 Dividend Paid () 2.1 2.0 5.1