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Question 4 (8 marks) The following table shows the yearly rate of return % of the selection of 3 types of investment instruments under 3
Question 4 (8 marks) The following table shows the yearly rate of return % of the selection of 3 types of investment instruments under 3 different business conditions: Bad Condition Fair Condition Good Condition Investment Instruments Ordinary Shares Mutual Funds Corporate Bonds -20% -10% -2% +5% +10% +1% +30% +20% +2% The following table shows the probability of 3 different business conditions in coming year: Bad Condition 0.5 Fair Condition 0.3 Good Condition 0.2 Probability Suppose the amounts of investment fund on 3 types of investment instruments in current portfolio are in the ratio 1: 1: 1. Required: Find the expected yearly rate of return % of the current portfolio. What will be your advises based on expected yearly rate of return% for the change of the amounts of investment fund on 3 types of investment instruments in the portfolio in the new ratio 1: 1:0 ? (50% on Ordinary Shares and 50% on Mutual Funds) Please explains. Solutions
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