A portfolio consists of three securities are as follows

	Stock A	Stock B	Stock C
Expected Return	80%	70%	45%
Risk	10%	20%	35%
Proportion Invested	30%	30%	40%

The correlation coefficient between the different securities is as follows:

Correlation coefficient between A B is 0.65

Correlation coefficient between B C is -0.35

Correlation coefficient between A C is 0.50

REQUIRED

(a) Calculate the expected return of the portfolio. [5 Marks]

(b) Calculate the risk of the portfolio. [12 Marks]

(c) Most investment professionals agree that, diversification is the most important component of reaching long-term financial goals while minimising risk. Why should an investor diversify his portfolio? [5 Marks]

(d) What are the key elements of diversifiable and non-diversifiable risk? [8 Marks]

(e) What are the stages involved in the Investment Process? [10 Marks]

(f) How far does the assumptions of the Capital Asset Pricing Model (CAPM) hold in reality? [10 Marks]