Hi there,

I just got feedback from an assignment I had uploaded and got the following questions marked as unsatisfactory:

Could you please let me know where I have gone wrong and what the correct answers would be.

Question 6

The investment team is considering adding both shares in Westpac in the banking sector and shares in Santos in the resources sector to their existing portfolio of shares.

The beta values for these Australian shares can be found on the finance.yahoo.com website.

(a)Using the Capital Asset Pricing Model (CAPM) find the expected return on Westpac shares when the expected return on Government bonds is 0.8%, the expected return on the market portfolio of shares is 13.2% and if the Beta for Westpac is 0.33.

Risk Free rate is the government figure of 0.8%

Beta rate is 0.33%

Market Rate premium is 13.2%

Expected return = 0.8% + (0.33% x 13.2%)

0.8% + 4.356 = 5.156

Therefore, the expected return rate is 5.156%

(c) Using the Capital Asset Pricing Model (CAPM) find the expected return on Santos shares when the expected return on Government bonds is 0.8%, the expected return on the market portfolio of shares is 13.2% and the Beta for Santos is 2.01.

By using the CAPM formula of Expected return = risk free rate + (beta x market return premium). Therefore, the expected shares in Santos will be:

0.08% + (13.2% x 2.01) = 34.532%