Anita recently commenced an

Likely
Probability Likely Likely investment portfolio which includes
Return on
of Return Return on Return on assets Stocks, Gold and Mutual Funds
Mutual Fund
% Stocks (%) Gold(%) about which Anita acquired the
(%)
following financial information as to
20 6 4 9 the likely returns at various
30 9 7 14 probabilities:
40 16 10 19
10 18 14 26

a.Calculate the expected return for each asset. b. Calculate the expected return of the portfolio
comprising of each asset weighted as follows

Asset Weight %
Stocks 20
Gold 55
Mutua
l 25
Funds

c. She managed to calculate the Standard Deviation of Stocks as 5.68% and Gold as 4.30% as
a measure of risk. Calculate the SD of Mutual Funds. Based on risk-return trade off, rank the
assets in her investment portfolio according to the level of risk, from highest to lowest.
You have 10,00,000 and are considering two investment options for its use. Option A is a real
estate investment that promises a 7% annual return over 10 years. Option B is a diversified
stock portfolio with an expected annual return of 9% over the same period.

Estimate the future value of your 10,00,000 investment for both Option A and Option B after
10 years. Then, compare these two investment options in the context of the time value of
money. Consider factors such as the potential risk, liquidity, and your financial goals. Based
on your calculations, identify which option you believe is better for maximizing the value of
your money over the next decade, explaining the reasoning behind your choice.

To estimate the future value of your 10,00,000 investment for both Option A (real estate) and Option
B (stock portfolio) after 10 years, you can use the future value formula, which takes into account the
initial investment, the annual rate of return, and the number of years:

Future Value (FV) = PV(1 + r)^n

Where:

PV is the present value (initial investment)

r is the annual interest rate (expressed as a decimal)
n is the number of years
Let's calculate the future values for both options:

Option A (Real Estate):

Initial Investment (PV) = 10,00,000

Annual Interest Rate (r) = 7% or 0.07
Number of Years (n) = 10
FV for Option A = 10,00,000 * (1 + 0.07)^10 = 10,00,000 * (1.07)^10 ≈ 19,72,098.24

Option B (Stock Portfolio):

Initial Investment (PV) = 10,00,000

Annual Interest Rate (r) = 9% or 0.09
Number of Years (n) = 10
FV for Option B = 10,00,000 * (1 + 0.09)^10 = 10,00,000 * (1.09)^10 ≈ 23,67,426.36