You are evaluating the shares of HP Ltd and RW Ltd. As the Australian economy starts to gain speed, you decide there is a 30% possibility of growth, 45% possibility of economic stability and 25% possibility of recession in next year. You believe under these states HP Ltd and RW Ltd shares will provide the following returns: 

State	HP Ltd Return	RW Ltd Return
Growth	21%	35%
Stable	12%	12%
Recession	- 10%	9%

 

Calculate expected returns of both HP Ltd and RW Ltd shares. Based only on the returns of these shares explain which share you would prefer to invest. (Show answer as a percentage correct to 2 decimal places.)

Now assume you want to invest $11,750 in HP Ltd shares and $13,250 in RW Ltd shares.  Calculate the expected return of the portfolio consisting of HP Ltd and RW Ltd shares. (Show answer as a percentage correct to 3 decimal places.)

If the beta of HP Ltd share is 1.1 and the beta of RW Ltd share is 1.9, calculate the beta of the portfolio consisting of HP Ltd and RW Ltd shares. (Show answer correct to 3 decimal places.)

Explain if it is better to invest in a single share or a portfolio of shares