Question

1. Greenwood ltd was listed at the Utopian stock exchange market ten years ago. The following table presents ten years of return data for the stock of Greenwood ltd and for the market index.

Year	1	2	3	4	5	6	7	8	9	10
Greenwood ltd (%)	8.1	3.0	5.3	1.0	-3.1	-3.0	5.0	3.2	1.2	1.3
Market index (%)	8.0	0.0	14.9	5.0	14.1	18.9	10.1	5.0	1.5	2.4

Required

1. Plot the returns of Greenwood ltd and the market index on a graph, with the market index’s returns on the horizontal axis
2. Derive the line of best fit
3. Estimate the beta factor of Greenwood ltd stock and comment on your result
4. Compute the coefficient of correlation between the returns the stock of Greenwood ltd and for the market index. Comment on your answer
5. State and explain factors affecting the return of stocks in your home country’s exchange market
6. Explain how an investor can construct a well diversified stock portfolio at your home country’s exchange market
7. Outline the main differences between active and passive stock portfolio management strategies.

2. Explain how foreign portfolio flows affect stock market performance in Kenya (Use a case study of Nairobi securities exchange)

Answer 1