(c) You own a portfolio consisting of the following stocks. The risk free rate is 6% and the market risk premium is 9%.

Stock Amount Invested Beta

ABC RM25,000 0.70

PQR RM40,000 1.50

XYZ RM35,000 1.10

(i) Determine the beta of the portfolio (2 marks)

(ii) Using the capital asset pricing model (CAPM), determine the required rate of return on the portfolio (2 marks)

(iii) The project is expected to earn an annual rate of return of 11%. On the basis of your calculation in part (ii), would you recommend this investment? Why and why not? (2 marks)

(iv) CAPM model is based on four assumptions in measuring risk and return. Elaborate any TWO (2) of the assumptions. (4 marks)