a. Smart Car Co. is a US-based firm selling cutting-edge electronic cars globally. Based on a
report by the International Energy Agency (IEA), 2021, sales of electric vehicles nearly doubled
in 2020. Sales to 6.6 million (a sales share of nearly 9%), bringing the number of e Time left 1:23:56
on the road to 16.5 million. Smart Car Co. therefore sees the industry report as an opportunity
to go global.
The Model A, a single model produced by the Smart Car Co. is a top selling in the U.S. market
hence they are considering expanding its operation to Southeast Asia region, specifically
Malaysia or Thailand. Based on the recent financial statistics report, Smart Car Co. records a
systemic risk of 1.2 and 1.3 to the Kuala Lumpur Composite Index (KLCI) and Stock Index of
Thailand (SET) respectively, and the regional equities are expected to close the year 10% higher
in 2023. The 10Y Malaysia Government Bond and Thailand Treasury Bill and Government Bond
Yield are trading at 3.92% and 2.58% respectively. The company is expecting to reap an 8%
return in a good economy while a 3% return during economic distress and the probability
distribution is weighted equally in both economic outlooks.
Required:
i. Determine the required rate of returns and coefficient of variations for investing in
Southeast Asia. Comment on the financial acceptability based on the investment riskiness and
risk-return trade-off.
(27 marks)
ii. Portfolio risk is a term used to describe the potential loss of value or decline in the
performance of an investment portfolio due to various factors. Determine two (2) types of
portfolio risk.
(4 marks)
