The following data have been provided with respect to three shares traded on the Nairobi Securities Exchange (NSE);
Risk-free rate of return
Beta Coefficient
Return on the NSE index
Share A
12%
1.340
0.185
Share C
Share B
12%
12%
0.750
1.000
0.185
0.185
Required:
i. Interpret the beta coefficient of shares A,B and C.
ii. Using the capital asset pricing model (CAPM) compute the expected return on Shares A,B and C.
(3 Marks)
(3 Marks)
d. Discuss why a negative relationship in portfolio construction is important.
(3 Marks)