Anne is a professional investor who actively trade on ASX. She has a risk balanced investment portfolio that include of Golden Share and Silver Bond. Her portfolio has been established for five years.

Required:

a)Assume that beta coeffient of Golden Share in Anne's portfolio is 1.3, the risk premium on the stocks of the same industry is4.7%, the risk-free rate of return is 4.2% and the inflation rate was 1.5 %. Calculate expected return of the Golden Share in Anne's portfolio using Capital Asset Pricing Model (CAPM) (1 mark)?

ANSWER:

b)If Anne's portfolio has provided her with returns of 10.5%, -8.5%, 12.7%, 14.5% and 13.8% over the past five years, respectively. Calculate the geometric average return of the portfolio for this period? (1 mark)?

ANSWER:

c)Assume that Anne bought 500 Golden Share in her portfolio for total investment of $2500, now the market price of the stock is $15, the dividend paid for this stock is $5per year. How much is the rate of return of this share(1 mark)?

ANSWER:

d)Assume that the following forecast available for the economic situations and income from the portfolio in the coming year, calculate the expected return, variance and standard deviation of the portfolio (4 marks)

Economic Situation Probabilities Return

Boom 35% 18.5%

Normal 40% 13%

Recession 25% - 2 %