Question $2$

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 investment 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 $40\%$ 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 Agriculture Notes $($Debt Instrument$)$ in $ Return on Ordinary Shares in $

Bumper Harvest $0\mathrm{.}425,00010,000$

Normal Harvest $0\mathrm{.}520,00011,000$

Low Harvest $0\mathrm{.}118,00022,000$

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 present such prospects overall? Support your answer with workings $(8$ makes$)$

c$.$ Compute the risk of investment in the portfolio if it were to stand alone and which one has the greater risk? Use the standard deviation. $(8$ Marks$).$

d$.$ Determine the portfolio risk is measured by standard deviation and comment on whether the diversification is possible or not by combining these investments. $(9$ Marks$).$

e$.$ If the objective of the finance manager is not to have expected return fluctuating by more than $$1800/$annum$.$ Can it be concluded that this portfolio is ideal for the company and why? $(4$ Marks$).$