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(a) Briefly explain each of the following terms: minimum variance portfolio mean-standard deviation frontier Beta coefficient (in CAPM) Risk free rate of return (8 marks)
(a) Briefly explain each of the following terms: minimum variance portfolio mean-standard deviation frontier Beta coefficient (in CAPM) Risk free rate of return (8 marks) (b) Explain to an equity investor the benefits and limitations of diversification. (5 marks) (c) Demonstrate how, in portfolio theory, the introduction of a risk-free asset allows us to identify the optimal portfolio for an investor. How is the efficient set defined in the case of a portfolio containing risky assets and the risk-free asset (the risk- free asset can have positive or negative weights)? (8 marks) (d) Discuss the limitations of the CAPM. (4 marks)
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