Question 3 (7 marks)

David established an investment portfolio of two blue chips four years ago: Gold share and Silver Bond. Gold share accounts for 65% of his investment portfolio.

Required:

1. If Davids portfolio has provided the returns of 9.5%, 11.3%, - 12.5% and 15.6% over the past four years, respectively. Calculate geometric average return of the portfolio for this period? (1 mark)?

ANSWER:

2. Assume that the below data is available for Davids portfolio performance, calculate the expected return, variance and standard deviation of the portfolio. (4 marks)

	Gold Share	Silver Bond
Expected return	26.5%	10.5%
Standard Deviation of return	6%	2%
Correlation of coefficient (p)	0.55

ANSWER:

3. Assume that expected return of the Gold share in Davids portfolio is 14.5%. The shares beta coefficient is 1.5. Market risk premium is 7.5. Calculate the risk-free rate using Capital Asset Pricing Model (CAPM) (1 mark)?

ANSWER:

4. Assume that David bought 2000 of Gold shares in his portfolio for a price of $75 each, the dividend paid for this stock is $7/stock each year. The current market price of this share is $135. Calculate the capital gain yield of this investment after four years (1 mark)?

ANSWER: