Question

what is w1 and w2 in quetion b and c ..

where these numbers pluged for W1 and W2 came from ?

Question CS You are thinking of investing in shares in Grev Matter Ltd. The possible returns on Grey Matter shares over the next year, and the probability of three of those returns, are shown in the following table. Probability 8 % Return -4 % Yound to l00 28% 3% 40 % 8 % 13% Ki-001-(oht8+3 Jusi [2 marks] What is the expected return on Grey Matter shares? (a), EIR]-RPrR. R, Pr[R,]+... +R, Pr[R, (-0.04)(0.08)+(0.03) (0.28)+(0.08)(0.4)+(0.13)(0.24)- 6.84% You are considering investing in a portfolio of shares, including the Grey Matter shares referred to above, as well as shares in White Ice Production Ltd. Details of these shares are shown in the table below. You plan to invest 60% of your funds in Grey Matter shares and the remainder in White Ice shares The risk-free rate of return is 2.0 % , and the market risk premium is 7 %. The correlation between the two shares is 0.6. Grey White Ice Matter Expected Return Standard Deviation 6.84% 6.5% 4% 6% Beta (B) 1.1 1.7 (b) What is the expected return on the portfolio? [2 marks] E[R=w.E[R]+w,E[R,]+... w,E[R, (0.6)(0.0684)+(0.4)(0.065) = 6.704% What is the standard deviation of the portfolio? (c) [3 marks] a,=w;SD(R.+wSD(R,) +2w.w.Corr(R,R,)SD(R.)SD(R,)W V(0.6)(0.04),(0.4) (0.06) t2(0.6)(0.4)(0.6) (0.04)(0.06) No.001843 4.29% CINSCOR

Answer 1

w is the weight or the proportion of your investment in a particular company

You plan to invest 60% of your fund in Grey matter........marked in yellow

so the weight of Grey Matter = 60% = 60/100 = 0.60 = w1

w2 = 100% - 60% = 40% or 0.40