SECTION A: Question 1 is compulsory and must be attempted Question 1 JL Co has...
80.2K
Verified Solution
Link Copied!
Question
Finance
SECTION A: Question 1 is compulsory and must be attempted Question 1 JL Co has K1,000,000 available for investments. The proposal is to invest half the total funds available in asset A, then distribute the other half in the ratio 1: 1 between the remaining two (02) assets (C, & D). Other details relating to the investments are as follows; Asset Average return % Beta value A 12.0 1.10 15.0 1.20 D 11.0 0.92 The market rate of return is 10% while the yield on treasury bills is 5% Required: a) Briefly explain the importance of considering correlation coefficient of assets performance in the process of diversification. [10 marks) b) Using CAPM, calculate the required rate of return for each of the three (3) assets (A, C and D) and comment on the results by comparing with the reported average returns above. [12 marks] c) Calculate the portfolio average return assuming that the K1,000,000 is invested in the three (3) assets in the proportions stated above. [9 marks) d) Calculate the portfolio beta value and its associated required rate of return based on CAPM. Comment on whether the portfolio is efficient or not. [9 marks] [Total: 40 marks)
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
