Question 1 Anna holds a portfolio comprising the following 3 stocks: X, Y and Z.

(a) Determine the xpected return of security X.

(b) Calculate the return of Anna's portfolio.

(c) Calculate the beta of Anna's portfolio.

(d) To reduce the systematic risk of portfolio, Anna is considering 3 securities to add to the portfolio. Security A has beta of 0, Security B has beta of 0.5, and security C has beta of -0.3. Discuss which security will be most effective in reducing the portfolio's systematic risk? How would porfolio expected return change (higher or lower) if you add this security?

Investment Amount $'000 Beta Expected Return 2,000 1.3 1,000 500 Security X Security Y Security Z 1 0 10% 2%