Risk and Return:

Suppose we have the following four securities that are priced in equilibrium.

Security Amount Invested Expected Return Beta

Share X $15,000 13.5% 0.6

Share Y $25,000 18.5% 1.1

Share Z $40,000 16.5% 0.9

Government Bond $90,000 7.5%

1. What are the portfolio weights?
2. What is the expected return on the portfolio?
3. What is the beta of the portfolio?
4. What is the security market line?
5. Share D is priced in such a way that it offers an expected return of 21.5%. If share D has a beta of 1.5, is it underpriced, overpriced or fairly priced? Explain or show calculations

question 2

Suppose you need to pay your air-ticket of $2 400 for a European trip next year. If you deposit money now, you can earn 7% per annum. How much do you need to invest today?

question 3

The company share market price is $25, its next-period expected dividend is $1 and investors in that market require a rate of return at 14% per annum. What is the implied rate of growth in dividends at this time