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QUESTION
a) Discuss the importance of diversification in the context of stock markets using appropriate numerical illustrations.
b) Mimine and Minush are two companies with the following dividend and market price per share (MP) for the period 2000-2005
Mimine
Minush
Year
DIV (Rs)
MP
DIV(Rs)
2000
1.4
22
1.53
31
2001
25
20
2002
1.8
35
2003
1
27
2
67
2004
36
100
2005
39
3
154
i. Calculate the average return and risk for the above shares. Show clearly your calculation. Interprete your results.
ii. Calculate the portfolio return if an investor decides to make a portfolio with equal weight.
iii. If the correlation coefficient is -0.5 calculate the portfolio risk. Comment on your answer.
(c) Differentiate between systematic and unsystematic risk.
The amount by which the market price exceeds the conversion value or the investment value called the premium. When expressed as a percentage, it is given by,
a. Consider the time line below that shows periodic cash flows and interest rates per period. Interest rate/year 0 1 2 3 4 5 6 7 8 9 Time 2,500 -4,000 6,000 -3,700 Cash flows
Evolution of Hedge Funds: The establishment of the first Hedge Fund in the United States in the year 1949 by Alfred W. Jones marked the evolution of Hedge Fund industry. It was
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