Question $6(15$ marks$)$

a$)$ Discuss the importance of the asset allocation decision for portfolio performance.

$(10$ marks$)$

b$)$ The market has an expected return of $13$ percent and the risk$-$free rate is $5\mathrm{.}5$ percent. If Merrill

Lynch has a beta of $1\mathrm{.}85,$ what is the required return for Merrill Lynch$?$

$(5$ marks$)$