QUESTION THREE

A comercial farmer in livestock is considering two potential projects for his portfolio, piggery

and beef master investments. Projections on potential returns under different conomic scenarios

hav been made by agriculture conscious analysts. The following data has been provided, as a

Page $2$ of $4$

result. Assume equal weight for each investment in the portfolio.

Required

a$)$ Determine the annual expected return for each scenario for this portfolio. $(3$ marks$)$

b$)$ If the farmer's target is to realize $22\%$ per year from the portfolio, comment on the

suitability of this portfolio for the farmer. Support your answer with workings

marks$)$

c$)$ Compute the risk of each project in the portfolio if it were to stand alone using standard

deviation.

$(4$ marks$)$

d$)$ Determine the portfolio risk as measured by standard deviation and comment on whether

the portfolio has been constructed using correct projects for risk management purposes.

$(5$ marks$)$

e$)$ If the objective of the commercial farmer is avoid expected returns fluctuating by more

than $6\%$ per annum. Is this portfolio ideal for the farmer and why? $(4$ marks$)$