a) Differentiate between systematic risk and unsystematic risk. (2 marks)
b) Jaribu Tena ltd is a firm that deals with county projects and for the last three years, it has been excelling in identifying the most viable projects for its clients as compared to its competitors. To make their project department more effective the CEO of the firm hired you as their financial management consultant and of the challenging task that was handed over to you is to advice on the best project to be selected. the following are the details of the projects for the three years
PROJECT A
Yr 1 Yr 2 Yr 3
Returns (%) 8 8 8
probability 0.3 0.5 0.2
PROJECT B
Yr 1 Yr 2 Yr 3
Returns (%) 6 11 31
probability 0.3 0.5 0.2
PROJECT C
Yr 1 Yr 2 Yr 3
Returns (%) 22 14 -4
Probability 0.3 0.5 0.2
Required
i. Determine the expected rate of return, standard deviation and coefficient of variation for each project. (9 marks)
ii. Select the most appropriate project to be selected by Tena ltd. (2 marks)
c) A 10 year government bond with a face value of sh 1,000,000 is offering a coupon rate of 8% p.a coupons are paid semi annually. What is the market price of this bond if the current market yield is 12% (7 marks)
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