Answer any FOUR $(4)$ out of $5$ questions.

uestion $1$

Maxwell Ltd$.$ is considering investing in one of two portfolios of financial investments. The company's

objective is to reduce risk through diversification and it believes that the return on any individual

investment is not correlated with the return on any other investment.

The return on market portfolio is estimated to be $10\%$ and the risk$-$free rate is $4\%.$ The amount invested,

the expected return, and betas for each portfolio are given as follows:

Portfolio $1$:

Portfolio $2$:

Required:

a$)$ Calculate the expected return of each portfolio.

b$)$ Estimate the required rate of return on the two portfolios using the Capital Asset Pricing

Model $($CAPM$).$

c$)$ Critically discuss the advantages and disadvantages of utilising Portfolio Theory to assist with

portfolio selection.