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QUESTION 3 [20] Emma Dlamini is considering two investments and can only invest in either the shares of Company X or in the shares of
QUESTION 3 [20] Emma Dlamini is considering two investments and can only invest in either the shares of Company X or in the shares of Company Y. The following information regarding retums and probability distributions of returns is relevant: Share X Share Y Probability Return Return Y 0.25 10% Q2S 10% 0.50 0:30 20% 0.25 20% 30% 0.20 30% Required: a) What is the expected return of X and Y? (4) b) Calculate the standard deviations of X and Y's returns (4) c) What is the coefficient of variation! d) What would you recommend? Why? e) Instead of Share Yoffering a probability of 20% of achieving a 30% retum, assume instead that the possible retum is 40%. How would this affect the investment decision? % (4)
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