Based on the following information, you have been asked to make recommendations to investors on the shares in four NYSE listed companies BOA plc, Exxon plc, Apple plc and Microsoft plc:

Company Beta Expected Rate of Return (per annum) indicated by current market price

BOA plc 0.85 10.5%

Exxon plc 1.4 13%

Apple plc 0.75 11%

Microsoft plc 1.15 8.9%

Assume the risk-free rate is currently 2%, the market risk premium is 8% and there are no transaction costs.

(a) Indicate which shares investors should buy and which they should sell. Justify your recommendations.

(b) Explain why investors would need to act quickly on your recommendations?

(c) If we assume the risk-free rate is 1% (but all other values remain the same), how does this affect your earlier recommendations?

(d) In the context of the Capital Asset Pricing Model, explain (i) what beta tells us about a share, (ii) how we might estimate beta and (iii) how a share's beta is related to the concept of systematic risk?