QUESTION 4

a.

Your aunty is small time investor. She normally doesn't read economic reports or analyse fundamental value of investment assets. She was act on friends' advice, rumors and instinct. For a long time she was complaining that her investment doesn't bear fruits to her. One day she ask for basic information sharing session with you at your house. You love your aunty. You wish to share same basic information that you have acquired is our degree program. You have strong believe that understanding on risk and return concept which forms unevitable knowledge for investors will elevate and transform your aunty become an informed investor. You have given a small list of information which requires specific information could be sourced from research department of stock broking and investment company. On the following week, your aunty visits you with some information as you requested, return, possible national economic outcome and its chances.

You found the information obtained are amazing due to its detailed statics in nature. The information was sourced from published weekly report by stock broking company for their clients. The analyst, who is an economist by profession organized general economic conditions into five levels, namely super excellent, excellent, normal, bad and worst. The respective chances of accurance are 2%, 24%, 45%, 21% and 6% orderly. Your aunty also manage to collect information from investment advisory office that forcasted rate of return for two popular investments asset. The assets are called Alpha and Beta. The rate of return for Alpha is organized as per economy performance corresponding order: 20%, 25%, 30%, 20% and 5%. The rate of return for Beta is organized as follows:25%, 22%, 20%, 15% and 10%. You have praised your aunty's ability to obtain such relevant information.

Your aunty is a risk averse person. You are required to calculate and explain on the expected rate of return, standard deviation of individual investment asset. You're also required to calculate and explain on portfolio return and portfolio risk.

(Total 20 marks)