Question 2 (total of 12 marks):

The following table shows details of a portfolio made up of stock ABC and a managed fund DEF. The managed fund charges minimal fees and closely tracks the performance of the S&P500, so can be treated as the market portfolio. This managed fund is labelled S&P500 DEF in the below table. Returns are expressed as effective annual rates.

Portfolio Details
	ABC	S&P500 DEF
Investment	$25,000	$75,000
Expected return	0.22	0.12
Total standard deviation	0.93	0.32
Beta	2.67375	1
Correlation between ABC and S&P500	0.92

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?

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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?

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

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

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Question 2f (2 marks): Comparing stock ABCs expected return and its CAPM required return, and given the 2% pa government bond yield mentioned above, is stock ABC over, under or fairly priced?

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