Question

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Q1 RKS Ltd. has an expected return of 22% and standard deviation of 40%. BBS Ltd. has an
expected return of 24% and standard deviation of 38%. RKS Ltd. has a beta of 0.86 and BBSLtd.
a beta of 1.24. The correlation coefficient between the return of RKS Ltd. and BBS Ltd.is 0.72.
The standard deviation of the market return is 20%. Suggest:
(a) Is investing in BBS Ltd, better than investing in RKS Ltd.?
(b) If you invest 30% in BBS Ltd. and 70% in RKS Ltd., What is your expected rate of return and
portfolio standard deviation?
[10 Marks]​

Answer 1

Answer:

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