Question2(total of 12 marks): An investor has a portfolio of two securities, stock XYZ and an exchange traded fund (ETF) that tracks the ASX200 and charges negligible fees. Assume that the ASX200 ETF is the market portfolio. The following table summarises the investors' holdings. Assume that returns areeffective annual ratesor net discrete returns.

Portfolio Details

XYZ

ASX200ETF

Investment

$40,000

$60,000

Expected return

6% pa

7% pa

Total standard deviation

30% pa

25% pa

Beta

?

1

Correlation of returns between XYZ and ASX200

0.65

Do not enter your answers as percentages.Provide all answers as decimals correct to at least 6 decimal places. So for example if your answer is 1.23456789%, write 0.0123456789.

Question 2a(2 marks): What is the portfolio'stotal expectedreturn pa?

Answers:Answer

Question 2b(2 marks): What is the portfolio'stotal varianceof returns pa?

portfolio variance:

Answers:Answer

Question 2c(2 marks): What is thebetaof stock XYZ?

Answers:Answer

Question 2d(2 marks): What is thebetaof the portfolio?

Answers:Answer

Question 2e(2 marks):What is the portfolio'ssystematic varianceof returns pa?

Answers:Answer

Question 2f(2 marks):Assuming that stock XYZ and the ETF are fairly priced, calculate the risk free rate.

Answers:Answer