QUESTION TWO

MT Telecoms, an entity in the telecommunications industry is involved in

operations that result in the company having stocks of cash resource. The

company has thus decided to create a portfolio of investments comprising of

Agriculture Note, a debt instrument, and ordinary shares of a company that is

into processing of Genetically Modified Foods. The intended investment in

Agriculture Notes is sixty percent and the remainder in ordinary shares.

Forecasts have shown the following possibilities in as far as scenarios and their

chances of occurring as well as annual returns are concerned.

Page $2$ of $5$

Required

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

$(4$ marks$)$

b$)$ If the target of the company is to get at least $$15500/$ annum from

funds invested, does this portfolio presents such prospect overally?

Support your answer with workings $(3$ marks$)$

c$)$ Compute the risk of each investment in the portfolio if it were to stand

alone and which one has greater risk. Use the standard deviation.$(5$

marks$)$

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

comment on whether diversification is possible or not, by combining

these investments. $(5$ marks$)$

e$)$ If the objective of the portfolio manager is not to have expected returns

fluctuating by more than $$1500/$annum$.$ Can it be concluded that this

portfolio is ideal for the company and why? $(3$ marks$)$