Brown plc has been investing surplus funds in a small portfolio of equity shares over the past few years. Details of the portfolio are as follows.

The current market return is 12 per cent and the yield on Treasury bills is 5 per cent.

(a) Is Brown’s portfolio more or less risky than that of the market portfolio? Support your answer with appropriate calculations.

(b) Give Brown plc advice on how it should change the composition of its portfolio, giving a rationale for the changes that you recommend.

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Company No. shares Beta Share Dividend Expected price () yield (%) return (%) Rasiak 70 000 1.27 3.75 5.6 12 Johnson 150 000 1.53 4.25 3.5 16 Smith 100 000 1.01 2.50 4.2 14 Bisgaard 80 000 0.95 4.50 6.2 9.5 Idiakez 130 000 0.82 3.50 4.8 15