MGT201 - Financial Management Assignment No. 1 Solution Fall 2018 Due Date: January 25, 2018 

Financial Management MGT201
Assignment #01 Marks= 25
Risk and return Analysis
Investment decisions are not taken in insolation; investors have to consider market
dynamics and firm level factors to choose among various available securities. Among
different factors affecting the investment decisions; risk and return are the significant
one. Considering only one of these two factors will not lead to a rational decision;
investors have to consider both for an optimal portfolio. Along with these factors; risk
appetite of an investor cannot be separated from investment decision. The decision of risk
taker investor is definitely different from a risk-averse investor.
Suppose you are a new investor in the market and you have two options for investing
your money. On the basis of risk return analysis and your risk appetite you are required to
select the one that suits you the most.
Following information is available for the two stocks:
Stock A Stock B
Returns Probability Returns Probability
29% 25% 30% 35%
28% 25% 29% 45%
30% 50% 28% 20%
You are required to calculate:
Return (8 marks)
1. Expected return on stock A
2. Expected return on stock B
Risk (12 marks)
3. Coefficient of variation for Stock A
4. Coefficient of variation for Stock B
On the basis of calculation of return and risk of both stocks; select the one according to
your risk appetite (Note: First declare yourself either as risk-averse investor or risk
taker investor). 1 Mark
Now construct a portfolio of these two securities with proportion of 40% of your total
investment in Stock A and 60% in Stock B; keeping all other information same (about
risk and return) calculate risk of portfolio if covariance between two stock is -0.45.
Compare the risk of your selected stock and the portfolio; do you think portfolio have
diversified the risk? 4 Marks
NOTE: Formula and calculations are mandatory in each part. Before taking
investment decision you are required to declare yourself either as Risk taker or risk
Averse investor otherwise your decision will be not considered.
IMPORTANT NOTE:
24 hours extra / grace period after the due date is usually available to overcome
uploading difficulties. This extra time should only be used to meet the emergencies and
above mentioned due dates should always be treated as final to avoid any inconvenience.
IMPORTANT INSTRUCTIONS/ SOLUTION GUIDELINES/ SPECIAL
INSTRUCTIONS
DEADLINE:
• Make sure to upload the solution file before the due date on VULMS
• Any submission made via email after the due date will not be accepted
FORMATTING GUIDELINES:
• Use the font style “Times New Roman” or “Arial” and font size “12”
• It is advised to compose your document in MS-Word format
• You may also compose your assignment in Open Office format
• Use black and blue font colors only
RULES FOR MARKING
• Please note that your assignment will not be graded or graded as Zero (0), if:
• It is submitted after the due date.
• The file you uploaded does not open or is corrupt.
• It is in any format other than MS-Word or Open Office; e.g. Excel, PowerPoint, PDF
etc.
• Not submitted as per given format
• It is cheated or copied from other students, internet, books, journals etc.
Note related to load shedding: Please be proactive
Dear students,
As you know that semester activities have started and load shedding problem is also
prevailing in our country. Keeping in view the fact, you all are advised to post your
activities as early as possible without waiting for the due date. For your convenience;
activity schedule has already been uploaded on VULMS for the current semester,
therefore no excuse will be entertained after due date of assignments or GDBs.

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