You have a portfolio which consists of investments in the stocks of three different technology companies. The breakdown of your portfolio is as follows:

Stock	Portfolio weighting
A	0.40	1.85
B	0.35	0.76
C	0.25	?

The of the portfolio is 1.50.

1. Calculate the of stock C.

(1 mark)

Stocks	Portfolio Weighting		(Weight)
A	0.4	1.85	0.74
B	0.35	0.76	0.27
C	0.25	1.98	0.49
of the Portfolio			1.50

1.50 0.27 - 0.74 = 0.49

0.49 / 0.25 = 1.98

If the yield on treasury bills is 2.5% and the expected return on the market portfolio is 9%:

2. Using the CAPM:

i) Calculate the expected rate of return on stock A.

ii) Calculate the expected rate of return on stock B.

(2 marks)

3. Using your answers to part (b) explain difference between aggressive and defensive stocks.

(4 marks)

You sell your stocks in the technology companies and reinvest half of the proceeds into stocks of a road haulage company. You plan to invest the remaining proceeds into the stock of one other company.

(d) Identify a type of company that would ensure your portfolio was diversified and briefly explain the factor(s) that would lead to this diversification.

You have a portfolio which consists of investments in the stocks of three different technology companies. The breakdown of your portfolio is as follows:

Stock	Portfolio weighting
A	0.40	1.85
B	0.35	0.76
C	0.25	?

The of the portfolio is 1.50.

1. Calculate the of stock C. (I already answered this part)

Stocks	Portfolio Weighting		(Weight)
A	0.4	1.85	0.74
B	0.35	0.76	0.27
C	0.25	1.98	0.49
of the Portfolio			1.50

1.50 0.27 - 0.74 = 0.49

0.49 / 0.25 = 1.98

If the yield on treasury bills is 2.5% and the expected return on the market portfolio is 9%:

2. Using the CAPM:

i) Calculate the expected rate of return on stock A.

ii) Calculate the expected rate of return on stock B. (2 marks)

3. Using your answers to part (b) explain difference between aggressive and defensive stocks. (4 marks)

You sell your stocks in the technology companies and reinvest half of the proceeds into stocks of a road haulage company. You plan to invest the remaining proceeds into the stock of one other company.

(d) Identify a type of company that would ensure your portfolio was diversified and briefly explain the factor(s) that would lead to this diversification.