Question 1

a) Briefly explain the role financial markets and institutions in the smooth operations of agribusinesses. (8 Marks)

b) Briefly explain the use of the capital asset pricing model (CAPM) in financial management. (4 Marks)

c) Given that the expected rate of return on the market (RM) is 11%; riskless rate (RL) is 3.5% ; standard deviation of the market (M) is 15% and the beta for stock of Mushiya Company is 0.3. What is the expected rate of return for Mushiya. (3 Marks)

d) Assuming an efficient frontier of possible portfolios and that the tangent (or market) has a return of 12% and the riskless asset a return of 3%. If you invested one-third of your money in the riskless asset and two-thirds in the tangent asset, what is your expected rate of return for your portfolio? (3 Marks)