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 summarizes the investors' holdings. Note that they have zero treasury bonds. Assume that returns are effective annual rates (also called net discrete returns).

Portfolio Details
	XYZ	ASX200 ETF
Investment	$50,000	$150,000
Expected return	0.13	0.06
Total standard deviation	0.82	0.25
Beta	1.8	1
Correlation between XYZ and ASX200	0.65

Provide answers as decimals rounded to 6 decimal places. For example, if your answer is 0.23456789, write it as 0.234568.

Question 2a (2 marks): What is the portfolio's total expected return pa?

Answers: Answer

Question 2b (2 marks): What is the portfolio's total variance of returns pa?

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Question 2c (2 marks): What is the beta of the portfolio?

Answers: Answer

Question 2d (2 marks): What is the portfolio's systematic variance of returns pa?

Answers: Answer

Question 2e (2 marks): if the government bond yield is 2% pa, whats the CAPM return of stock XYZ?

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Question 2f (2 marks): Comparing stock XYZs expected return and its CAPM required return, is stock XYZ over, under or fairly priced?

Answer: AnswerOver-pricedFairly pricedUnder-priced