1. a) Obi-wan forms an aggressive growth portfolio by investing 24% of his savings in Fordstock, 24% in Nissanstock, 21% in Kiastock, 11% in an index fund, and the last 20% is allocated on a bond fund. Assume for simplicity that the index fund is a good proxy to the market portfolio and has a beta equal to 1, whereas the bond fund is a good proxy to the riskless asset. The beta of Ford stock is 1.18, the beta of Nissanis 1.54, and the beta of Kiais 1.8. If the expected return of the market index is 12% and the risk-free asset yields 5%, what are the beta and the expected return of Obi-wan's portfolio?Give your answer roundedto two decimal places.

What is the beta of the portfolio?

P=

b) Basedon the valueofP= 1.14, what is the expected return of Obi-wan's portfolio?Give your answer rounded to two decimal places.

E(rP)=

2.

a) The CFO of MediSearch plc believes that investing into a project which will develop a new drug for fighting the flu virus, promises a long-term annual return of 8%. The expected return of the market index isRM=9.4%, the volatility of the market index isM= 10%, and the risk-free asset earnsRf= 2.4%. The CFO has studied similar projects of other companies and believes that the covariance between the returns of this project and the returns of the market isP,M= 0.0085 (in decimal form).

What is the beta of the project?Enter your answer rounded to two decimal places.

b) According to the CAPM, what should be the required return of the project given its beta of 0.85?Enter your answer rounded to two decimal places.

c) Should the CFO accept the project?

Yes

No

3.

Abrams builds a portfolio by investing in two stocks only: Samsung (SMSN) and Huawei(SHE). According to the CAPM, the expected risk premium (i.e., the expected return minus the risk-free rate) of SMSNis 10.95% and the expected risk premium of SHEis 6.1%. The beta of SMSNis equal to 1.41. If Abrams puts 64% of his money in SMSN stock and 36% in SHEstock, what is the approximate beta of his portfolio?

p=