Questiona discuss the importance of diversification in the, Ask an Expert

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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)	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.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M9585812

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