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You have recently graduated from TIIS and is anxious to begin investing your savings as a way of applying what you have leamed in your

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You have recently graduated from TIIS and is anxious to begin investing your savings as a way of applying what you have leamed in your business finance course. Specifically, you are evaluating an investment in a portfolio comprising two firms' ordinary shares. You have calculated the following information about the ordinary shares of firm A and firm B: What are the expected rate of return and the standard deviation in portfolio return? II you invest half of your money in each of the two shares. ii. If the correlation between the two investments is equal to 0 . 3 Marks iii. If the correlation between the two investments is equal to +1. 3 Marks iv. If the correlation between the two investments is equal to 1. 3 Marks v. Using your responses to Part i.iv, describe how diversification affects the returns of a portfolio of investments. 8 Marks

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