QUESTION 1

You have been appointed as the investment manager for Maximum Asset Managers. You are in the process of selecting a portfolio of assets, and have been presented with returns relating to four assets, as follows:

YEAR ASSET G ASSET H ASSET I ASSET J

1 16% 10% 8% 14%

2 14% 18% 11% 12%

3 8% 16% 4% 19%

4 - 4% 13% - 5% 15%

PORTFOLIO PROPORTION

GHJ 30% Asset G; 50% Asset H; 20% Asset J

Required:

a) Calculate the expected return of the proposed portfolio GHJ. (Round off your final answer to two decimal places.)

b) Calculate the standard deviation of portfolio GHJ. (Round off your final answer to two decimal places.)

c) Calculate the coefficient of variation of portfolio GHJ. (Round off your final answer to two decimal places.)

QUESTION 2

Mr Shapiro, an investment analyst at Maximum Asset Managers, has been assessing the returns of Tornado Ltd and Hurricanes Ltd as he is considering adding the companies' shares to an investment portfolio that he manages for his client, Mr Kolbe. He has been provided with the following information:

COMPANY BETA RISKFREE RATE MARKET INTEREST RATE RETURN (CAPM)

Tornado Ltd ? 8. 25% 16.50% 20%

Hurricanes Limited ? 10% 14.75% 8%

Required:

a) Calculate the Beta for Tornadoo and Hurricanes Ltd. (Round off your answers to 2 decimal places.)

b) Assess the impact on Hurricanes Ltd's return if the market interest rate was to increase by 7.50%.

c) Assess the impact on Tornado Ltd's return if the market interest rate was to decrease by 4.25%.