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Jomo Kenyatta University OF Agriculture and Technology Master of Business Administration

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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Black-Talent Ken Narotso
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117 views2 pages

Jomo Kenyatta University OF Agriculture and Technology Master of Business Administration

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.

Uploaded by

Black-Talent Ken Narotso
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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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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