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Jonny Smith has fully diversified portfolio (original portfolio) to the value of R800 000. He inherits an investment worth R200 000 in the form of ordinary shares in GrowthSA Ltd. The correlation coefficient of returns of GrowthSAs shares with the original portfolio returns is 0.40. His financial adviser provided her with the following forecast information: Risk and return characteristics Expected monthly returns Std dev of monthly returns Original portfolio 0.67% 2.37% Growth SA 1.25% 2.95%

The inherence changes Jonnys overall portfolio and he is deciding whether to keep the GrowthSA shares. Assuming Jonny keeps the GrowthSA shares, calculate the:

2.1.2Covariance of GrowthSA share returns with the original portfolio returns. (2) 2.1.3Standard deviation of his new portfolio, which includes the GrowthSA shares. (4)

2.2 If Jonny sells the GrowthSA shares, he will invest the proceeds in risk-free government securities, yielding a monthly return of 0.42%. Assuming Jonny sells the GrowthSA shares and replaces it with the government securities, calculate the: 2.2.1Expected return of her new portfolio which includes the government securities. (2)

2.2.2Covariance of government security returns with the original portfolio returns. (2) 2.2.3Standard deviation of her new portfolio, which includes the government securities. (3)

2.3 Determine whether the systematic risk of his new portfolio, which includes the government securities, will be higher or lower than that of his original portfolio. (1)

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