Historically, returns on investments in shares of a gold mining company have a volatility of 60% and a negative correlation of -0.05. The market index has a volatility of 15% and an expected return of 10%. The risk-free rate is 5%.

Required

1. What is the Beta of the companys gold shares?
2. What return would you expect on an investment today in gold shares of the company?
3. Based on your answer to part b, does investing in the gold shares make sense? Briefly explain your answer.
4. Suppose you are holding an all-equity market index fund currently valued at $400,000, and today you have invested a $100,000 in gold shares of the company. What will be the Beta of your investment portfolio of the gold shares and the market index fund?
5. What return would you expect on your investment portfolio in part d?
6. What would be the non-diversifiable volatility of your investment portfolio in part (d)?