Question 21

You hold a portfolio with the following securities:

Security

% of Portfolio

Beta

Expected Return

Standard deviation

ABC

20%

1.20

16%

21%

XYZ

35%

1.00

12%

13%

WXA

45%

0.85

9%

11%

Current risk free rate is 6% and the expected return on the market portfolio is 11%

Required:

a)Explain what beta represents

b)Estimate the required rate of return for each assets/ Are they undervalued or overvalued. Explain.

c)Estimate the coefficient of the variance

d)Estimate the minimum and maximum expected return

e)Rank projects based on investors risk preference

f)Estimate portfolio beta and RRR return.