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The following information has been extracted from the books of Magumede Ltd for the year
ended 31December 2010:
Required:
Prepare the following statements for Magumede Ltd for the year ending 31December 2010:
QUESTION 2
A company has to choose between two projects both of which involve an investment of
£20 000. The current cost of capital is 10%. The net cash inflows of the projects are:
______________________________________________________
Year Project A Project B
$ $
1 7 000 14 000
2 7 000 8 000
3 7 000 2 000
4 7 000 2 000
______________________________________________________
Required:
You are interested in forming a portfolio based on two securities with the following
characteristics:
Required:
a) Calculate the expected return and the standard deviation for the equally weighted
portfolio. [13]
b) Would an investor choose to invest in this portfolio or invest in a single security? [7]
c) What other considerations should be taken into account when deciding on portfolio
construction? [5]