Answer Happy

Your company can invest in either, or both of two investments: Hitam Berhad shares and Putih Berhad shares. The expected returns on each of these two investments vary depending on economic conditions. The following table shows the expected returns and the likelihood of the economic conditions. Economic conditions b) i) ii) iii) iv) v) vi) vii) Recession E Normal Boom Probability 5% 65% viii) ix) the risk of the portfolio. 30% Hitam Berhad returns (%) the average return for Hitam Berhad shares the average return for Putih Berhad shares the weighted return of Hitam and Putih shares a) If you invest in a portfolio comprising both shares, it will be 60% in Hitam Berhad, and 40% in Putih Berhad, calculate the risk for Hitam Berhad shares the risk for Putih Berhad shares the weighted risk for Hitam and Putih shares the correlation between Hitam and Putih shares the average return for portfolio. 12 12 16 Putih Berhad returns (%) (5) 18 28 (20 marks) Based on your response above, explain what occurred to the rate of return and risk when you moved from individual shares to a portfolio. (5 marks)