Question

Business conditions	Boom	Good	Normal	Recession	Poor
Probability	0.05	0.25	0.40	0.25	0.05
Petronas share return %	12	10	4	-2	-7
Maxis share return %	26	12	8	-6	-22
Berjaya share return %	41	23	12	-27	-55

For the above shares if the expected inter correlations are given as follows:

	Investment in RM millions	Weight	Correlation
Petronas	23	?	0.15(P,M)
Maxis	47	?	0.25(M,B)
Berjaya	40	?	0.35(B,P)

1. d) Compute Weights
2. e) Compute the expected portfolio return and
3. f) Expected portfolio risk                            

g) Portfolio Sharpe ratio                                            

Answer 1

1 computation of weight

S.no	Share name	Investment amounts	Weight(specific share/total investment)
1	Petronas	23	0.2091 (23/110)
2	Maxis	47	0.4273 (47/110)
3	Berjaya	40	0.3636 (40/110)
		110

2. Computation of expected return on portfolio

So return on portfolio is 4.0259

3. Expected portfolio risk

Portfolio risk =

=

=56.7248

4 sharp ratio = (return on security - risk free return)/standard deviations

Here we have not risk free return information so we could not calculate sharp ratio.