QUESTION 5

You just received some yearend bonus from your workplace. Instead of spending it lavishly, you intend to invest the money. You have been given some information by your financial planner Mr Ali regarding these two stocks namely, Logitech stock and HP stock. With some knowledge that you have learn during your degree, you trying to evaluate between the two stocks. Below is the information given by your financial planner.

State of Economy	Probability of State of Economy	Rate of Return if States Occurs
		Stock LG	Stock HP
Recession	0.20	- 0.15	0.20
Normal	0.50	0.20	0.30
Boom	0.30	0.60	0.40

1. Calculate the expected return for these two stocks.

(4 marks)

2. Compute the standard deviation for both stocks.

(6 marks)

3. Suppose you have RM 20,000 total. If you decided to put RM 15,000 in Stock LG and the remainder in Stock HP, calculate the expected return and standard deviation of your portfolio?

(8 marks)

4. Based on the calculation above. Evaluate your finding by state and which investment should you choose single type of investment or combination of stock investment. Justify your answer.

(3 marks)

[20 Marks]