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All sub-questions a) - I) relate to the following information: Consider the following six (6) portfolios plotted with the Minimum Variance Frontier. Assume all portfolios,
All sub-questions a) - I) relate to the following information: Consider the following six (6) portfolios plotted with the Minimum Variance Frontier. Assume all portfolios, except portfolios O and P, are fairly priced according to the CAPM: This question (parts a - I) is worth 15 marks in total. For each part, if you enter the correct answer you will receive full marks (even if you don't show working). If you choose to show working, and get the answer incorrect, you may receive part marks. If you simply enter the incorrect answer and do not show working, you will not receive any part marks. a) Which one of these portfolios is the Market Portfolio and what is the market risk premium? (1 mark) Enter your answer to 3 decimal places eg if your answer is 6.54% enter as 0.065. b) What is the beta of portfolio M? (1 mark) Enter your answer to 2 decimal places eg if your answer is 0.457 enter as 0.46. ABI c) Although portfolio N is fairly priced according to the CAPM, the variance and expected return of Portfolio N are not consistent with a CAPM equilibrium. What can you say about the risk and expected return of Portfolio N compared to Portfolio M? (1 mark)
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