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  • Jomo Kenyatta University OF Agriculture and Technology Master of Business Administration

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    Black-Talent Ken Narotso
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    This document contains two questions regarding financial management for an exam. Question One involves computing the expected return, standard deviation, covariance, and correlation of four assets. It also requires calculating the risk of combinations of those assets. Question Two provides return data for three investment projects (A, B, and the market) under different economic states. It requires calculating expected returns, portfolio returns, variance, standard deviation, beta, and required rates of return using CAPM for projects A and B.

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    This document contains two questions regarding financial management for an exam. Question One involves computing the expected return, standard deviation, covariance, and correlation of four assets. It also requires calculating the risk of combinations of those assets. Question Two provides return data for three investment projects (A, B, and the market) under different economic states. It requires calculating expected returns, portfolio returns, variance, standard deviation, beta, and required rates of return using CAPM for projects A and B.

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    © All Rights Reserved
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    13 views2 pages

    Jomo Kenyatta University OF Agriculture and Technology Master of Business Administration

    Uploaded by

    Black-Talent Ken Narotso
    This document contains two questions regarding financial management for an exam. Question One involves computing the expected return, standard deviation, covariance, and correlation of four assets. It also requires calculating the risk of combinations of those assets. Question Two provides return data for three investment projects (A, B, and the market) under different economic states. It requires calculating expected returns, portfolio returns, variance, standard deviation, beta, and required rates of return using CAPM for projects A and B.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 2

    JOMOKENYATTAUNIVERSITY

    OF
    AGRICULTUREANDTECHNOLOGY
    MASTEROFBUSINESSADMINISTRATION
    HCBA3108:FINANCIALMANAGEMENTCAT
    DATE:NOVEMBER,2015TIME:1HOUR
    INSTRUCTIONS:ANSWERQUESTIONALLQUESTIONS

    QUESTIONONE(20MARKS)
    Fourassetshavethefollowingdistributionofreturns.
    Probability
    Occurrence A
    0.1 17.0%
    0.2 22.0 8.0
    0.4 13.0 10.0
    0.2 11.0 15.0
    0.1 10.0 18.0

    Rateofreturn(%)
    B
    C
    D
    10.0%
    14.0%
    12.0%
    12.0 16.0
    10.0 19.0
    10.0 15.0
    16.0 20.0

    REQUIRED:
    a) Computetheexpectedreturnandstandarddeviationofeachasset.
    b) Computethecoefficientofvariationofeachasstet
    c) Computethecovarianceofassets
    i. AandB
    ii. BandC
    iii. BandD
    d) Compute the correlation coefficient of the combination of assets in b
    above.
    e) computetherisksofthecombinationofthefollowingassets.

    i)AandBifaninvested20%inAand80%inB
    ii)BandCifaninvested70%inBand30%inC
    iii)BandDifaninvested40%inBand60%inD

    QUESTIONTWO(20MARKS)
    Acompanyisconsideringinvestmentinthreepossibleprojectsforthenext
    year.Eachprojecthasaoneyearlifespanandprojectreturnsdependonthe
    next years state of the economy. The estimated rates of return are shown
    below:
    Stateoftheeconomy probability

    rateofreturn(%)

    Market

    Average

    0.25

    18

    19

    14

    Recession

    0.50

    15

    13

    17

    Boom

    0.25

    14

    18

    10

    Required:
    i. ExpectedreturnsforA,Bandthemarket
    ii. Whatwouldbetheportfolioreturnifthecompanyinvested60%
    ofitsfundsinAand40%inB
    iii. Portfoliovariance
    iv. Portfoliostandarddeviation
    v. Portfoliobeta
    vi. RequiredrateofreturnofassetAandBusingCAPMiftherisk
    freerateis10%

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