QUESTION ONE

Scott Manufacturers is looking to invest in the stock market. They have obtained the following projected estimates for

shares A and M:as per attached

Required:

$1\mathrm{.}1.$ Calculate which of the two investments would have the greatest total risk.

$1\mathrm{.}2.$ Rank the two investments on the basis of $($i$)$ expected return and $($ii$)$ risk, and use your rankings to

motivate which investment you would choose. You may assume that Scott Manufacturers is a conservative

company.

$1\mathrm{.}3.$ Calculate the extent to which the returns of the two shares move together. You must also interpret your

answer and comment on the benefit $($or lack thereof$)$ of combining both shares in the same portfolio.

$1\mathrm{.}4.$ Now suppose that Scott Manufacturers decides to invest $R30000$ of its available funds in $A,$ and $R70$

$000$ in $M$ : Calculate the variance of this portfolio.QUESTION ONE

Scott Manufacturers is looking to invest in the stock market. They have obtained the following projected estimates for

shares A and $M$ :

Required:

$1\mathrm{.}1.$ Calculate which of the two investments would have the greatest total risk.

$1\mathrm{.}2.$ Rank the two investments on the basis of $($i$)$ expected return and $($ii$)$ risk, and use your rankings to

motivate which investment you would choose. You may assume that Scott Manufacturers is a conservative

company.

$1\mathrm{.}3.$ Calculate the extent to which the returns of the two shares move together. You must also interpret your

answer and comment on the benefit $($or lack thereof$)$ of combining both shares in the same portfolio.

$1\mathrm{.}4.$ Now suppose that Scott Manufacturers decides to invest $R30000$ of its available funds in $A,$ and $R70$

$000$ in $M$ : Calculate the variance of this portfolio.