MT Telecoms, an entity in the telecommunications industry is involved in operations that result

in the company having stocks of cash resource. The company has thus decided to create a

portfolio of investments comprising of Agriculture Note, a debt instrument, and ordinary shares

of a company that is into processing of Genetically Modified Foods. The intended investment in

Agriculture Notes is forty percent and the remainder in ordinary shares. Forecasts have shown

the following possibilities in as far as scenarios and their chances of occurring as well as annual

returns are concerned.

Scenarios Probability Return on Agric Notes

$($$$)$

Return on Ordinary

Shares $($$$)$

Bumper

Harvest

$0\mathrm{.}42500010000$

Normal Harvest $0\mathrm{.}52000011000$

Low Harvest $0\mathrm{.}11800022000$

Required

a$)$ Determine the annual expected return for each scenario for this portfolio. $(6$

marks$)$

b$)$ If the target of the company is to get at least $$16500/$ annum from funds invested, does

this portfolio presents such prospect overally? Support your answer with workings $(8$

marks$)$

c$)$ Compute the risk of each investment in the portfolio if it were to stand alone and which

one has greater risk. Use the standard deviation. $(8$ marks$)$

d$)$ Determine the portfolio risk as measured by standard deviation and comment on

whether diversification is possible or not, by combining these investments. $(9$ marks$)$

e$)$ If the objective of the finance manager is not to have expected returns fluctuating by

more than $$1800/$annum$.$ Can it be concluded that this portfolio is ideal for the company

and why? $(4$ marks$)$