Question 3[20 Marks]

(a)(i) "Investing in a multinational corporation can help to diversify the portfolio risks." Comment on this statement.(3 Marks)

(ii) Evaluate the unique risks need to be considered when investing in multinational corporations.(3 Marks)

(b)Two securities - PohKeong Gold and Mama Care are currently being considered by Jason. He is considering either to invest 100% in PohKeong Gold or building a portfolio that consist of both security - 60% in PohKeong Gold and 40% in Mama Care. The probability distribution of expected returns of these assets are shown in the following table.

Stateof Economy

Probability

Returnon PohKeong Gold

Returnon Mama Care

Bear

0.30

3%

2%

Bull

0.70

18%

10%

(i)Calculate the expected return for each of the two alternatives. (4 Marks)

(ii)Calculate the standard deviation of returns of the two alternatives. (6 Marks)

(iii)Evaluate the investors decisions, based on the above calculations

(4 Marks)