You have some money that you want to invest and considering two stocks: Aftab Automobiles (Beta = 0.7) & Beximco Textiles (Beta = 0.8). You can earn 6% risk free & the market risk premium is 7%.

(a) Suppose that you invest 60% of your money in Aftab Auto & the remaining in Beximco. What is the required rate of return on the portfolio?

(3 Marks)

(b) If the market return goes down by 5%, what would happen to your portfolio return? (3 Marks)