FINANCIAL MODELING

Question 7 16 Suppose that the risk-free rate is 6% and the market portfolio of risky assets has an expected return of 12% and a standard deviation of 15%. Assume that the market portfolio is efficient. 7.1 Determine the equation of the capital market line. Represent the equation by means of a graph on a (-o) diagram and indicate the market portfolio on the graph. [5] 7.2 If the expected rate of return of 25% is desired, what is the standard deviation of this position? [3] 7.3 If you have R1500 to invest, how should you allocate it to achieve the position in question 7.2 above? If you invest R1 500 according to this allocation, how much money would you expect to have at the end of a year? [6] 7.4 If you have invested R600 in the risk-free asset and R900 in the market portfolio, how much money should you expect to have at the end of the year? [2] Question 7 16 Suppose that the risk-free rate is 6% and the market portfolio of risky assets has an expected return of 12% and a standard deviation of 15%. Assume that the market portfolio is efficient. 7.1 Determine the equation of the capital market line. Represent the equation by means of a graph on a (-o) diagram and indicate the market portfolio on the graph. [5] 7.2 If the expected rate of return of 25% is desired, what is the standard deviation of this position? [3] 7.3 If you have R1500 to invest, how should you allocate it to achieve the position in question 7.2 above? If you invest R1 500 according to this allocation, how much money would you expect to have at the end of a year? [6] 7.4 If you have invested R600 in the risk-free asset and R900 in the market portfolio, how much money should you expect to have at the end of the year? [2]