Question 2 (total of 12 marks): An investor has a portfolio of two securities, stock XYZ and an exchange traded fund (ETF) that tracks the ASX200 and charges negligible fees. Assume that the ASX200 ETF is the market portfolio. The following table summarises the investors' holdings. Assume that returns are effective annual rates or net discrete returns. Portfolio Details XYZ ASX200 ETF Investment $40,000 $60,000 Expected return 6% pa 7% pa Total standard deviation 30% pa 25% pa Beta ? 1 Correlation of returns between XYZ and ASX200 0.65 Do not enter your answers as percentages. Provide all answers as decimals correct to at least 6 decimal places. So for example if your answer is 1.23456789%, write 0.0123456789. Question 2a (2 marks): What is the portfolio's total expected return pa? Answers: Question 2b (2 marks): What is the portfolio's total variance of returns pa? portfolio variance: Answers: Question 2c (2 marks): What is the beta of stock XYZ? Answers: Question 2d (2 marks): What is the beta of the portfolio? Answers: Question 2e (2 marks): What is the portfolio's systematic variance of returns pa? Answers: Question 2f (2 marks): Assuming that stock XYZ and the ETF are fairly priced, calculate the risk free rate. Answers: Question 2 (total of 12 marks): An investor has a portfolio of two securities, stock XYZ and an exchange traded fund (ETF) that tracks the ASX200 and charges negligible fees. Assume that the ASX200 ETF is the market portfolio. The following table summarises the investors' holdings. Assume that returns are effective annual rates or net discrete returns. Portfolio Details XYZ ASX200 ETF Investment $40,000 $60,000 Expected return 6% pa 7% pa Total standard deviation 30% pa 25% pa Beta ? 1 Correlation of returns between XYZ and ASX200 0.65 Do not enter your answers as percentages. Provide all answers as decimals correct to at least 6 decimal places. So for example if your answer is 1.23456789%, write 0.0123456789. Question 2a (2 marks): What is the portfolio's total expected return pa? Answers: Question 2b (2 marks): What is the portfolio's total variance of returns pa? portfolio variance: Answers: Question 2c (2 marks): What is the beta of stock XYZ? Answers: Question 2d (2 marks): What is the beta of the portfolio? Answers: Question 2e (2 marks): What is the portfolio's systematic variance of returns pa? Answers: Question 2f (2 marks): Assuming that stock XYZ and the ETF are fairly priced, calculate the risk free rate. Answers
