Question

Question4 Kamet is an investment fund that invests on the Ghana Stock Exchange. In recent times the economy has gone through four different cycles which analyst believe may be repeated in the years ahead. Kamet is reviewing its investment strategy and is looking for the best way to malke good returns for its clients. The returns on thrce assets selected by Kamet are provided below Business Cyele Probability Unilever Normal Boom Near Recession Recession 0.30 0.40 0.10 ???,20.1.. 40% 20% 20% 12%. Starwin 4090 45% 30% 50% Anglogold 30% 40% 15% 30% You are required to i. Compute the expected return and risk of each asset and advise Kamet as to which asset to invest more funds in on the basis of: a) expected return on the assets b) riskiness of the assets (Hint: compute the coeficient of variation of each asset and select the asset with the lowest coeffcient of variation; C E(R) i. Kamet has just informed you of three strategies (a), (b) and (c) that it wants to use. (a) In this strategy, Kamet will invest in the order of expected return hence the highest proportion of its funds is to be invested starting from the asset that yields the highest expected return irrespective of the risk level. The order is as follows: Assets nd 3' rd Measured Measured Measured by by Return by Return Return 45% , percentage of funds invested 20% (b). In this strategy, Kamet will invest in the order of riskiness of the assets hence the highest proportion of its funds is to be invested starting from the assets with the lowest risk irrespective of the expected return. The order is as follows. 1 st Measured Measured Measured by Risk by Risk by Risk 2n Assets Percentage-offunds invested | 50% 30% 20% (c). In this strategy, Kamet will invest in the order shown below Unilever Starwin Anglogold 40% Assets 30% 30% Percentage of funds invested rn for each of the strategies (a), (b), and (c) and advise Compute the portfolio expected retu Kamet as to the best strategy to select on the basis of the expected return you have computed.

Answer 1

Unil evex S tar woin Anglo gold Analysis aM Bus in ex、cycle Amet i Ass et 2 percantag O 3 Nos mal 20 Boom Q. 4 20 0 1 12 2.4 O. 4 SUM 24.4 Eupe cdud Kutum (M ean) 94.4 R1 13 44 Varian ce Auer standard Deviat ion Coefpicien Variction 0.430050 A1 R1 A-px Storwin RturProbabil Buuinas Cyel obobility c Noma 40 12

Boom A 5 Near Recession O. 30 3 0-2 R2 Expected Re AMert 2 43 V2 Variance Axert S2 S0,RT Standard Deviodi (V2) Augert 2 0.129 Ango oldl Busine cycle. er Normal 囗 30 Boom 0.4 40 Near Reci on -0.3-0.4-O-り Recension 0.2 30 SUM 32.5 Expectod Rot urn(M 32. 5

ariance Auet, 5G-25 Standard Dev, aton 50 Asert 3 SSRTV3 voriatio CVs 0 230G2 R3 elid Standavd Coet | Rrturn1xp Deviation von吨on Unileve AMert 3 Anglog old 1.50 1023040 32.5 | f Axe MoMt .t und in Starwi, Least ir Unilevey e xpected Raturn stYaua Axert Compan Weight Asext Unileuer O-2 Wi 24 A 0.45 2 4 3 Stario Ws 22.5 Aert3Anglo 3.3 SUH