Part 1 - Scenario Study (30 marks) Expected Rate of Return Utility Treasury Bill Index...
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Part 1 - Scenario Study (30 marks) Expected Rate of Return Utility Treasury Bill Index Fund Company -10% High-Tech Company Counter- Cyclical Company 5% -25% 20% 20% 5% -6% 7% -20% 16% Scenario Probability Recession 20% Near Recession Normal 30% Near Boom 10% Boom 20% 5% 12% 9% 15% 12% 5% 15% 11% -9% 25% 35% 5% 20% 14% -20% Expected Return 5% 5.9% 9.2% 5% 5.9% Standard Deviation 0% 11.94% 2.82% 24.19% 15.69% With reference to the information given above, 1) Discuss the relationship between risk and return of the individual securities. (10 marks) 2) Demonstrate the meaning and advantages of diversification by constructing a portfolio consisting of equal investments in the High-Tech Co. and the Counter- Cyclical Co. Explain your idea and show your work clearly. (20 marks) Perform calculations or quantitative analyses to support your answers where necessary
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