Q.42  PORTFOLIO MANAGEMENT PM 2018 OCT. CA FINAL SFM
Channel: PAVAN SIR CLASSES
Date: 2020-10-06

Question
X Co., Ltd., invested on 1.4.2009 in certain equity shares as below:
Name of Co.  No. of shares  Cost (₹) 
M Ltd.  1,000 (₹ 100 each)  2,00,000 
N Ltd.  500 (₹ 10 each)          1,50,000 

In September, 2009, 10% dividend was paid out by M Ltd. and in October, 2009, 30% dividend paid out by N Ltd. On 31.3.2010 market quotations showed a value of ₹ 220 and ₹ 290 per share for M Ltd. and N Ltd. respectively. 
On 1.4.2010, investment advisors indicate (a) that the dividends from M Ltd. and N Ltd. for the year ending 31.3.2011 are likely to be 20% and 35%, respectively and (b) that the probabilities of market quotations on 31.3.2011 are as below:

Probability factor  Price/share of M Ltd.  Price/share of N Ltd. 
0.2                                          220                         290 
0.5                                          250                        310 
0.3                                          280                        330 
You are required to: 
(i) Calculate the average return from the portfolio for the year ended 31.3.2010;
(ii) Calculate the expected average return from the portfolio for the year 2010-11; and 
(iii) Advise X Co. Ltd., of the comparative risk in the two investments by calculating the standard deviation in each case.