1.Describe the key assumptions underlying CAPM

2.If the risk free rate of return is 6% and the return on the market portfolio is 10%, what is the return of an asset having a Beta of 1.4, according to CAPM,

3.An investor is evaluating six portfolio with the following characteristics:

PortfolioPortfolio Portfolio

Expected Standard

--Return (%) Deviation (%)

1 198

2 2512

3 166

4 3216

5 22.510

682

The expected return on the market portfolio is 12% with an accompanying standard deviation of 4%. The risk free rate of interest is 5%.

Using the capital market line, advise the investor on which of the above portfolio are efficient and inefficient

In the case of an inefficient portfolio in (i) above, state what the standard deviation should be for efficiency to be achieved with the given expected return

4.International investments can be included in an investment portfolio to provide diversification and growth opportunities. Discuss the various risks that are posed and mitigation measures a potential investor would embrace

5.Calculate the price of a bond with a par value of Ksh. 10, 000 to be paid in 10 years, a coupon rate of 10% p.a and a required yield of 12% p.a. Assume that coupon payments are made semi-annually to bond holders and that the next coupon payment is expected in six months. Calculate the price of the bond and determine if it's being sold at a discount, premium or at par