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Pro Limited is evaluating two possible investment projects. You are given the following information about the two investments. Probability Investment A Investment B 0.25 10%
Pro Limited is evaluating two possible investment projects. You are given the following information about the two investments. Probability Investment A Investment B 0.25 10% 22% 0.15 15% 27% 0.30 20% 18% 0.20 22% 16% 0.10 25% 12% Required: Page 3 of 4 3.1 Calculate the expected return of each of the investments. (2 Marks) 3.2 Calculate the standard deviation for each of the 2 assets. (3 Marks) 3.3 What is the covariance of the 2 assets? (4 Marks) 3.4 Suppose you advise Pro Limited to invest 25% in Investment A and 75% in Investment B what will be the expected return on Pro Limited's investments? (2 Marks) 3.5 Given 4 above what will be the standard deviation of Pro Limited's investments? (4 Marks) 3.6 Has Pro Limited enjoyed any benefits from diversification? Support your answer using the figures calculated above. (10 Marks)
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