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b) You are considering the two securities listed below Stock Stock A Stock B RM35,000 Initial Investment RM25,000 Stock A Stock B Economy Probability Outcomes
b) You are considering the two securities listed below Stock Stock A Stock B RM35,000 Initial Investment RM25,000 Stock A Stock B Economy Probability Outcomes Returns Returns Pessimistic 20% 5% 13% 8% 50% Normal 10% Optimistic 30% 15% -15% Calculate the expected return for portfolio i) ii Calculate the standard deviation of returns for portfolio. i Justify why diversification work best for these stocks. c) Suppose the return on market is 13.00%, market volatility is 40.00% and the risk-free rate is 4.00% i) Using an illustralion diagram of the Capilal Assel Pricing Model (CAPM), fomulale the equation of the Security Market Line (SML) based on the above information [7 Marks] ii Suppose a security has a beta of 1.20. According to the CAPM, compute its expected return
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