hi this question is from mafa compilation. i would like to know how to solve the third part of the question, i.e. the one asking for std deviation. anyone?
X Co., Ltd., invested on 1.4.2005 in certain equity shares as below:
|
Name of |
No. of shares |
Cost (Rs.) |
|
M Ltd. |
1,000 (Rs.100 each) |
2,00,000 |
|
N Ltd. |
500 (Rs.10 each) |
1,50,000 |
In September, 2005, 10% dividend was paid out by M Ltd. and in October, 2005, 30% dividend paid out by N Ltd. On 31.3.2006 market quotations showed a value of Rs.220 and Rs.290 per share for M Ltd. and N Ltd. respectively.
On 1.4.2006, investment advisors indicate (a) that the dividends from M Ltd. and N Ltd. for the year ending 31.3.2007 are likely to be 20% and 35%, respectively and (b) that the probabilities of market quotations on 31.3.2007 are as below:
|
Probability factor |
Price/share of M Ltd. |
Price/share of N Ltd. |
|
0.2 |
220 |
290 |
|
0.5 |
250 |
310 |
|
0.3 |
280 |
330 |
You are required to:
(i) Calculate the average return from the portfolio for the year ended 31.3.2006;
(ii) Calculate the expected average return from the portfolio for the year 2006-07; and
(iii) Advise X Co. Ltd., of the comparative risk in the two investments by calculating the standard deviation in each case. (8 Marks) (November, 2006)
CAclubindia
