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(b) You are considering to invest in three stocks listed in the Bursa Malaysia. The information about three stocks is given as below: State of Probability of Rate of Return if State Occurs Economy state of Stock M Stock N Stock O economy Boom 0.32 18% 23% 58% Normal 0.41 14% 10% 6% Bust 0.22 2% -10% -40% If your portfolio is invested 20 percent in stock M and 40 percent each in stock N and stock O, compute the following. (i) What is the portfolio expected return? (4 marks) (ii) What is the standard deviation of the constructed portfolio? (3 marks) (iii) If the expected T-bill rate is 2.50 percent, what is the expected risk premium on the portfolio? (3 marks) C) Stock X offers a market return of 22% with a systematic risk of 1.8 and stock Y offers a market return of 20.44% with a systematic risk of 1.6. If these stocks are correctly priced, what would the risk-free rate have to be? (4 marks) (Total: 25 marks) (b) You are considering to invest in three stocks listed in the Bursa Malaysia. The information about three stocks is given as below: State of Probability of Rate of Return if State Occurs Economy state of Stock M Stock N Stock O economy Boom 0.32 18% 23% 58% Normal 0.41 14% 10% 6% Bust 0.22 2% -10% -40% If your portfolio is invested 20 percent in stock M and 40 percent each in stock N and stock O, compute the following. (i) What is the portfolio expected return? (4 marks) (ii) What is the standard deviation of the constructed portfolio? (3 marks) (iii) If the expected T-bill rate is 2.50 percent, what is the expected risk premium on the portfolio? (3 marks) C) Stock X offers a market return of 22% with a systematic risk of 1.8 and stock Y offers a market return of 20.44% with a systematic risk of 1.6. If these stocks are correctly priced, what would the risk-free rate have to be? (4 marks) (Total: 25 marks)

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