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)
|
MP
|
|
2000
|
1.4
|
22
|
1.53
|
31
|
|
2001
|
1.4
|
25
|
1.53
|
20
|
|
2002
|
1.8
|
35
|
1.53
|
31
|
|
2003
|
1
|
27
|
2
|
67
|
|
2004
|
2
|
36
|
2
|
100
|
|
2005
|
2
|
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.