You have £300,000 to invest and you areconsidering buying shares in one or both of two companies (Company X andCompany Y). The market price of each share is currently £15 for both Company Xand Company Y. Details of the possible present value of the return on eachshare are given below:
Company X Company Y
PV Probability PV Probability
-£6 0.3 -£4 0.2
NIL 0.4 +£2 0.5
+£10 0.3 +£7 0.3
The above returns on the shares ofCompanies X and Y are independent.
Required:
a) Calculate the expected valueand the standard deviation of the possible returns on each of the followinginvestments.
i) All of the £300,000 is investedin the shares of Company X.
ii) All of the £300,000 is investedin the shares of Company Y.
iii) The £300,000 investment issplit equally in value between the shares of Company X and Company Y.
Note: Standard Deviation =
b) In the context ofdiversification and portfolio theory, explain the similarities and differencesin your calculations in a) above.
请把详细过程也写下,many thanks