Question 4 [20] While completing your financial management course, you learnt about risks related to certain investments and the expected returns for these risks. You realised, however, that you only have an annuity fund as part of your investment portfolio to provide for your future and decided to expand your portfolio of investments and buy shares in private companies. As you are a conservative investor, you are considering investing in the following two entities:

Company	Weight	Expected return	Standard deviation
Rest Assured	40%	8.5%	1.2%
Be certain	60%	10.5%	2.2%

The covariance between the Rest Assured and Be Certain shares is 0.01. If you were to invest your money in a financial institution such as a bank, you could receive an expected return of 7.2% interest and your exposure to risk would be 1%.

Required: Round off your final answer to two decimals. 4.1 In your own words, explain the relationship between risk and return. (3) 4.2 Calculate the return and the standard deviation of the above portfolio. (14) 4.3 Based on the above calculations, do you think it would be better to invest in the portfolio of shares or in a financial institution? Explain your answer. (3)