Suppose you are the money manager of a $2 million investment fund. The fund consists of four stocks with the following investments and betas.

Stocks Investment Beta

JBG $ 200,000 1.50

GRACE $ 300,000 - 0.50

LASD $ 500,000 1.25

HBN $1,000,000 0.75

The current risk-free rate of return is 6.5% and the expected return on the market portfolio is 16%. Required:

A. Compute the required rate of return for EACH stock using the Capital Asset pricing Model. (8 marks)

B. Compute the Expected Return of the portfolio. (3 marks)

C. Compute the Portfolio Beta. (3 marks)

D. Differentiate between diversifiable and non-diversifiable risks. How do the Beta and Standard Deviation differ in relation to these risks? (6 marks) (Total 20 marks