pls solve q1 only

BENIN PRINCIPLES OF FINANCE 15 APRIL 2002 INSTRUCTIONS There are Four questions in this section. Candidates MUST answer ALL questions. Question 1 a) Explain why some risk is diversifiable and some risks are not diversifiable. Give an example of each (7 marks) b) Consider the following information about Asset A and Asset B: Probability of State of Rate of Return (r) State of Economy Economy (Pri) Asset A Asset B Bust 15% -8% -5% Normal 70% 13% 14% Boom 15% 48% 29% For each asset, compute i. the expected rate of return (6 marks) i. the standard deviation of the expected retum. (6 marks) If the market risk premium is 8%, the risk free rate is 4%, compute the Beta () for each asset using capital asset pricing model (CAPM) formula and identify which one has the most systematic risk and riskier asset. (6 marks) (TOTAL: 25 MARKS) ii. Question a) You are considering the following two mutually exclusive projects. The required return on each project is 12 percent. Year Cash Flow Project A Cash Flow Project B RM RM 0 -75.000 -38.000 1 32.400 17.800 2 30,200 14,200 3 36,600 19,800 Determine which project should the firm accept if the company applies Continued... ZS 2/8 BEN1024 PRINCIPLES O FINANCE ISHARRIL 2922 i. the profitability index (PI) decision rule. (5 marks) the net present value (NPV) decision rule. (5 marks) iii Given your first two answers, identify which project you should accept and the reason for that decision (2 marks) b) Explain why the net present value is considered to be the best method of analyzing an investment (5 marks) c) BaikCycles Berhad are man are the details of their ima