AQ058-3-2-FMGT CLASS TEST Page 1 of 1

Answer All Questions

You are thinking about investing your money in the stock market. You have the following two
stocks in mind: stock A and stock B. You know that the economy can either go in
recession(bad), normal or it will boom (good). You also know the following about your two
stocks:

State of the Economy Probability RA RB

Good 0.30 24% 30%

Normal 0.40 36% 18%

Bad 0.30 48% -6%

You also have information that the correlation coefficient between the two stocks as -0.6.

Required

Question 1

a) Calculate the expected return for stock A and stock B.

(10 Marks)

b) Calculate the risk (standard deviation) for stock A and for stock B.
(10 Marks)

c) Calculate the expected return and the standard deviation of a portfolio comprised of stocks A
and B. The weight in stock A is 60%.
(10 Marks)

d) Explain your answers

(20 marks)

(Total 50 Marks)
Question 2

Ideally, a company market value should reflect its fundamental values. If this is not the case, one
or more groups of stakeholders will suffer. Explain.

(50 Marks)
(Grand Total: 100 Marks)

END OF QUESTION PAPER

APU Level 2 Asia Pacific University of Technology & Innovation 202209