question one

ayako mwewa has an original portfolio worth k900000. she then inherits shares from ZamZam ltd worth k100000. she seeks your guidance as an investment analyst regarding her new acquisition and its effects on her new portfolio. the following information is given.

	expected returns p.a	standard deviation of returns p.a
original portfolio	0.67%	2.37%
Zamzam ltd	1.25%	2.95%

correlation between original portfolio and ZamZam ltd p.a is 0.4

i. calculate the expected return for the new portfolio which comprises of the original portfolio and ZamZam ltd.

ii. compare the standard deviation of the new portfolio which comprises of the original portfolio and ZamZam ltd.

iii. calculate the coefficient of variation for the original portfolio

iv. calculate the coefficient of variation for the new portfolio

v. advise ayako weather the new portfolio has a better CV than the original portfolio

question 2

economic state	probability	returns: stock X	returns: stock Y
recession	0.2	5%	7%
normal	0.6	15%	14%
boom	0.2	25%	21%

i. compute the holding period return of stock Y for the scenario of a recession

ii. calculate the correlation coefficient of the above two stocks

iii. given that the treasury bill return is 5%, construct the security market line and clearly label the above two stocks

question three

i. discuss advantages and disadvantages of alternative investments.

ii. define two characteristics of a good market

iii. explain the importance of secondary market.

iv. outline the four steps in the portfolio management process.