You have information on several possible investments as laid out in the table below. A, B, and C are individual risky securities. For now, assume these are the only these 3 risky investments that comprise the market. F is the risk-free asset. M is the market portfolio. All returns are annual returns.

THE TABLE FOR THE QUESTION HAS BEEN ATTACHED.

Answer the following questions with respect to this investment information:

a. Using the correlation matrix, compute the covariance of asset A with the market. (1 mark)

b. Using the correlation matrix, compute the beta of asset C.

c. What is the expected excess return of B according to the Capital Asset PricingModel (CAPM)? Is security B priced correctly, undervalued or overvalued?

d. Suppose the risk free rate is 5%, how much of security F is included in the market portfolio M? Briefly explain. (1 mark)

e. Suppose the market capitalization of asset B is $10M and the total market capitalization if $1,000M. If you invest $1M in the market portfolio, how many dollars are you investing in asset B?

f. You have $100,000 to invest. You would like use a combination of M and F to Obtain a standard deviation of 4% on your overall portfolio. How much (in dollars) do you invest in F if you choose the most efficient portfolio possible?

g. Suppose the market capitalization of asset C is $500M and the total market capitalization if $1,000M. You have $100,000 to invest. You would like to find a combination of all the securities in the market and F to obtain a standard deviation of 8% on your overall portfolio. How much (in dollars) do you invest in asset C if you choose the most efficient portfolio possible?

h. You have $100,000 to invest. What is the maximum Sharp ratio you can obtain on a portfolio?

i. Suppose 3 additional firms issue shares of equity, so that now there are a Semester Two Sample Final Examinations, 2016 FINM2401 Financial ManagementPage 6 of 7total of 6 risky assets. The new assets are negatively correlated with A, B andC. Relative to the previous question, would the maximum Sharp ratio in this new economy be higher or lower? Briefly Explain.

j. A new security has expected return equal to 18.20% and the same beta of as security A. What is the alpha of the security? Does this security lie on the Security market line? Briefly explain.

PLEASE SHOW ALL WORKINGS AND STEPS FPR EACH PART

THANK YOU