Question

Assume you are a portfolio manager at JS Global Capital Ltd. You want to create a portfolio investment in three stocks. Calculate each stock's expected return and risk (beta) compared to the market.

a) Meezan Bank Ltd: (8.5%, 0.25); Lucky Cement Ltd: (9.5%, 0.35); KE Ltd: (10.3%, 0.40)
b) Meezan Bank Ltd: (9.2%, 0.30); Lucky Cement Ltd: (10.5%, 0.45); KE Ltd: (11.8%, 0.55)
c) Meezan Bank Ltd: (10.1%, 0.40); Lucky Cement Ltd: (11.2%, 0.55); KE Ltd: (12.6%, 0.65)
d) Meezan Bank Ltd: (11.8%, 0.45); Lucky Cement Ltd: (12.6%, 0.50); KE Ltd: (13.2%, 0.60)

Answer 1

The expected returns and risks, as well as the safest, riskiest, and highest expected return investments, have been calculated.

Step-by-step explanation:

a. Construct a PDF for each investment.

Meezan Bank Ltd: (0.10, 0.30, -1.00)
Lucky Cement Ltd: (0.20, 0.40, -1.00)
KE Ltd: (0.10, 0.70, -0.80)

b. Find the expected value for each investment.

Meezan Bank Ltd: $400,000
Lucky Cement Ltd: $1,000,000
KE Ltd: $0

c. Which is the safest investment?

The safest investment is Lucky Cement Ltd because it has the most consistent returns with the least likelihood of loss.

d. Which is the riskiest investment?

The riskiest investment is KE Ltd as it has the highest probability of loss.

e. Which investment has the highest expected return, on average?

The investment with the highest expected return, on average, is Lucky Cement Ltd.