Question 1.120 Marics) Refer to the below information and answer the question the follow considering to invest as a way to diversify and it is considering two products Product A and the 7P Limited has been in business since the year 2000. In view of the current COVID pandemic it is other Product B. It is being planned to be implemented in the year 2021. Each product's return depends on each year's state of economy. The estimated average rates of return and probability as shown in the table: State of Economy Probability of State of Econ Recession Average Boom 0.25 0.30 0.20 Rate of Return if state Occurs Product A Products -22% 4596 28% 3396 30% -9% A. Find each product's expected rate of return variance, standard deviation, and coefficient of variation. [5 marks] B. Which product would you recommend for investment explain [2 marks] C Assume that ZP is going to invest one third of its available funds in Product A, and two third in Product B. Answer the below question as part of 'C' i. What is the expected return on the portfolio by reformulating the table above [3marks) it. What are the variance and standard deviation of the portfolio by reformulating the table above? (3 marks) (Do not use Portfolio Formula). iii. What are the covariance and correlation coefficient between product A and B? [5marks) (Strictly use the Approach you were taught in class) iv. Assume that the beta for Product A is 0.8 and that of Product B is 1.4. The risk free rate is 9%. What is the expected return of each of the two securities using the CAPM if the market return is 157 [3 marks) IF ZP Ltd decides to invest in the two assets basing on the ratios in Cabove. What is the portfolio Beta and Portfolio return [4 marks) V Question 1.120 Marics) Refer to the below information and answer the question the follow considering to invest as a way to diversify and it is considering two products Product A and the 7P Limited has been in business since the year 2000. In view of the current COVID pandemic it is other Product B. It is being planned to be implemented in the year 2021. Each product's return depends on each year's state of economy. The estimated average rates of return and probability as shown in the table: State of Economy Probability of State of Econ Recession Average Boom 0.25 0.30 0.20 Rate of Return if state Occurs Product A Products -22% 4596 28% 3396 30% -9% A. Find each product's expected rate of return variance, standard deviation, and coefficient of variation. [5 marks] B. Which product would you recommend for investment explain [2 marks] C Assume that ZP is going to invest one third of its available funds in Product A, and two third in Product B. Answer the below question as part of 'C' i. What is the expected return on the portfolio by reformulating the table above [3marks) it. What are the variance and standard deviation of the portfolio by reformulating the table above? (3 marks) (Do not use Portfolio Formula). iii. What are the covariance and correlation coefficient between product A and B? [5marks) (Strictly use the Approach you were taught in class) iv. Assume that the beta for Product A is 0.8 and that of Product B is 1.4. The risk free rate is 9%. What is the expected return of each of the two securities using the CAPM if the market return is 157 [3 marks) IF ZP Ltd decides to invest in the two assets basing on the ratios in Cabove. What is the portfolio Beta and Portfolio return [4 marks) V
