Question 2 Kamer is an investment fund that invests on the Ghana Stock Exchange. In recent times the economy has gone through four different cycles which analyst believe may be repeated in the years ahead. Kamet is reviewing its investment strategy and is looking for the best way to make good returns for its clients. The returns on three assets selected by Kamet are provided below: Starwin Probability 0.30 Assets Business Cycle Normal Boom Near Recession Recession You are required to: i. Compute the expected return and risk of each asset and advise Kamet as to which asset to invest more funds in on the basis of 0.40 0.10 ???? Assets Unilever 40% Percentage of funds invested 20% 20% a) expected retum on the assets b) riskiness of the assets (Hint: compute the coefficient of variation of each asser and select the asset with the lowest coefficient of variation; CV=) ii. Kamer has just informed you of three strategies (a), (b) and (c) that it wants to use. (a) In this strategy, Kamet will invest in the order of expected retum hence the highest proportion of its funds is to be invested starting from the asset that yields the highest expected retum irrespective of the risk level. The order is as follows: Tª Measured by Return 45% Tª Measured by Risk 45% 30% 50% Measured by Return 35% Unilever 30% Anglogold 30% (b). In this strategy, Kamet will invest in the order of riskiness of the assets hence the highest proportion of its funds is to be invested starting from the assets with the lowest risk irrespective of the expected return. The order is as follows. Measured by Risk 30% 40% 15% 30% Starwin 30% 3⁰⁰ Measured by Return 20% 3⁰ Measured by Risk Percentage of funds invested || 50% (c). In this strategy, Kamet will invest in the order shown below Assets Percentage of funds invested Compute the portfolio expected return for each of the strategies (a), (b), and (c) and advise Kamet as to the best strategy to select on the basis of the expected return you have computed. Page 2 of 5 Anglogold 40%
Question 2 Kamer is an investment fund that invests on the Ghana Stock Exchange. In recent times the economy has gone through four different cycles which analyst believe may be repeated in the years ahead. Kamet is reviewing its investment strategy and is looking for the best way to make good returns for its clients. The returns on three assets selected by Kamet are provided below: Starwin Probability 0.30 Assets Business Cycle Normal Boom Near Recession Recession You are required to: i. Compute the expected return and risk of each asset and advise Kamet as to which asset to invest more funds in on the basis of 0.40 0.10 ???? Assets Unilever 40% Percentage of funds invested 20% 20% a) expected retum on the assets b) riskiness of the assets (Hint: compute the coefficient of variation of each asser and select the asset with the lowest coefficient of variation; CV=) ii. Kamer has just informed you of three strategies (a), (b) and (c) that it wants to use. (a) In this strategy, Kamet will invest in the order of expected retum hence the highest proportion of its funds is to be invested starting from the asset that yields the highest expected retum irrespective of the risk level. The order is as follows: Tª Measured by Return 45% Tª Measured by Risk 45% 30% 50% Measured by Return 35% Unilever 30% Anglogold 30% (b). In this strategy, Kamet will invest in the order of riskiness of the assets hence the highest proportion of its funds is to be invested starting from the assets with the lowest risk irrespective of the expected return. The order is as follows. Measured by Risk 30% 40% 15% 30% Starwin 30% 3⁰⁰ Measured by Return 20% 3⁰ Measured by Risk Percentage of funds invested || 50% (c). In this strategy, Kamet will invest in the order shown below Assets Percentage of funds invested Compute the portfolio expected return for each of the strategies (a), (b), and (c) and advise Kamet as to the best strategy to select on the basis of the expected return you have computed. Page 2 of 5 Anglogold 40%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Question 2
Kamer is an investment fund that invests on the Ghana Stock Exchange. In recent times the
economy has gone through four different cycles which analyst believe may be repeated in the
years ahead. Kamet is reviewing its investment strategy and is looking for the best way to make
good returns for its clients. The returns on three assets selected by Kamet are provided below:
Business Cycle
Normal
Boom
Near Recession
Recession
You are required to:
i. Compute the expected return and risk of each asset and advise Kamet as to which
asset to invest more funds in on the basis of
a) expected return on the assets
b) riskiness of the assets (Hint: compute the coefficient of variation of each asset
and select the asset with the lowest coefficient of variation; CV=
B(RY
Kamet has just informed you of three strategies (a). (b) and (c) that it wants to use.
(a) In this strategy. Kamet will invest in the order of expected retum hence the highest
proportion of its funds is to be invested starting from the asset that yields the highest
expected retum irrespective of the risk level. The order is as follows:
ii.
Assets
Probability
0.30
0.40
0.10
????
Percentage of funds invested
Assets
Unilever
40%
20%
20%
12%
1″
Measured
by Return
[1ª
Measured
by Risk
50%
Starwin
40%
Unilever
30%
45%
30%
50%
200
Measured
by Retum
(b). In this strategy, Kamet will invest in the order of riskiness of the assets hence the
highest proportion of its funds is to be invested starting from the assets with the
lowest risk irrespective of the expected return. The order is as follows.
Measured
by Risk
30%
Starwin
30%
Anglogold
30%
40%
Percentage of funds invested
(c). In this strategy, Kamet will invest in the order shown below
Assets
Percentage of funds
invested
15%
30%
3rd
Measured by
Return
20%
Measured
by Risk
20%
Page 2 of 5
Anglogold
Compute the portfolio expected return for each of the strategies (a). (b), and (c) and advise
Kamet as to the best strategy to select on the basis of the expected return you have computed.
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