Question 2 (20 marks)

A portfolio manager invested 60% in the stock of Wamco and the remaining in BHP Billiton. The details of the companies are as shown in the table below.

Compute:

1. The expected return for the portfolio (5 marks)
2. The standard deviation of the portfolio (5 marks)
3. Coefficient of variation of the portfolio (5 marks)
4. Is the portfolio well diversified? (5 marks)

Expected Return of Wamco Ltd	12%
Expected Return of BHP Billiton Ltd	8.50%
Standard deviation of Wamco Ltd	10%
Standard deviation of BHP Billiton Ltd	13%
Covariance between the returns on Wamco and BHP Billiton Ltd	0.0045