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Probability Share A Share B Market Boom 30% 15% 25% 16% ...

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Question

Finance

Probability Share A Share B Market
Boom 30% 15% 25% 16%
Normal 50% 10% 20% 13%
Recession 20% 2% 1% 7%

You are given the following information on shares A and B. Using the information provided, answer the questions that follow:

  • 4.1. Which share (A or B) is riskier? Provide calculations to support your answer. (9)
  • 4.2. Using relevant calculations, prove that the correlation coefficient of shares A and B is

0.97.

(4)

4.3. Calculate the level of systematic and unsystematic risk in Share A.

(5)

4.4. If you choose to form a portfolio by investing 70% in Share A, and 30% in share B, calculate the standard deviation of the portfolio.

(3)

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