1. A private syndicate called Lotto has requested that you invest on their behalf for the next twelve months. They have made 2m available to you for this purpose. The syndicate requires that you invest in one of four specified projects detailed below and in the money market. The projects cannot be postponed and are not divisible. The syndicate requires a minimum return of 20% over the next year. Investment Information Initial Return over Cost a year Beta Eooo % Minimum money market investment 800 14 0.62 Project K 1,200 27 0.87 Project D 1,200 30 0.98 Project T 1,200 23 1.14 Projects 1,200 18 1.26 Some preliminary work has been undertaken to calculate portfolio risk - but no record of weightings is included. The risk free rate is estimated to be 10%. The expected market return is 22% Portfolio Between money market and project K Between money market and project D Between money market and project T Between money market and project 5 Risk of portfolio 6.9% 8.2% 7.87% 6.62% a) Evaluate how the 2m should be invested using: D) portfolio theory ii) the capital asset pricing model (CAPM) b) Discuss the limitations of CAPM and the implications for managers involved in making major investment decisions, assuming their aim is to maximise shareholder wealth