QUESTION TWO

1. Assume that the risk-free rate is 10 percent, and the market return is 14 percent and that KCB, Centum, and Safaricom have the following betas respectively 0.85, 1.25, and -0.20. Assume further that, a financial analyst from Kingdom Securities research department estimates the following for the stocks:

Stock	Current price	Expected Price	Expected dividend
KCB	22	24	0.75
Centum,	48	51	2.00
Safaricom	37	40	1.25

Required:

1. Compute the required (expected) rated of return for the stocks. (3 marks)
2. What Actions would you take with regard to these stocks, discuss your decisions.

(7 marks)

Draw a properly labeled graph of the Markowitz efficient frontier. Describe the efficient frontier in exact terms. Discuss the concept of dominant portfolios and show an example of one on your graph. (10 marks