a) Are you a risk-neutral or a risk-averse investor? Explain your choice of investment risk profile.

b) Assume that you are the portfolio manager of the Bolex Fund, a RM5 million fund that contains the following stocks.

The required rate of return on the market is 16.00% and the risk-free rate is 8.00%. What rate of return should investors require on this fund?

Ri = Rf + (Rm Rf)Bi Rp = Rf + (Rm Rf)Bp Bp = WA*bA + WB*bB + WC*Bc + WD*bD

Stock Amount Beta A RM1,600,000 1.25 B 1,000,000 0.49 C 1,400,000 1.38 D 1,000,000 0.70 RM 5,000,000

c) Assume you are the investor who invest in the Singapore stock market. What is the performance of your stock if you notice that the FCN STI Index is moving down by 9%?

i. If you hold individual stock X with beta 0.7

ii. If you hold individual stock Y with beta 1.0

iii. If you hold individual stock Z with beta 1.3

d) Explain the meaning of market risk and diversifiable risk. State an example for each risk.