Q4.1Question 4.1

4 Points

Your investment portfolio consists of $10,000 worth of MLM Ltd's shares which has an expected return of 14% and a standard deviation of 35%. Assume that the riskfree rate is 4%, the market portfolio's expected return is 12%, and the market portfolio's standard deviation is 18%. Calculate the standard deviation of an alternative efficient portfolio that has the same expected return as MLM Ltd. Show all calculations.

Q4.2Question 4.2

5 Points

An equally-weighted portfolio contains eight securities, each with a standard deviation of returns of 50%. If the pairwise correlation of returns for these securities is 0.6, calculate the resulting portfolio's standard deviation of returns. Show all calculations.

Q4.3Question 4.3

5 Points

Penske Ltd has a standard deviation of returns of 18% and a correlation with the market portfolio of 0.8. The market portfolio's expected return is 14%, its standard deviation of returns is 12%, and the riskfree rate of return is 6%. Calculate the equilibrium return on the company's shares. Show all calculations. If the expected return based only on the variable dividend growth model is 14% are the shares correctly priced? If not, what would happen to the share price and why? (No calculations required.)