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QUESTION 1 The table below depicts the expected return for CCC Berhad and XXX Berhad for April and May: a) Calculate the betas for both stocks. b) Discuss the problems encounters when testing the CAPM empirically. c) In light of the problems in CAPM, the APT model was proposed as an alternative. Discuss how the …
QUESTION 2 Suppose there are an infinite number of assets with an expected return of 12% p.a. and a standard deviation of 40%. Further, assume investors from equally-weighted portfolios. (a) If the correlation between any two assets is zero, calculate the expected return and standard deviation of a randomly selected two-stock portfolio and a three-stock …
QUESTION 3 (a) Explain the differences in how modern and traditional theories of a portfolio management approach the issue of diversification. (b) As an investor you have a required rate of return of 14 percent for investments in risky stocks. You have analyzed three risky firms and must decide which (if any) to purchase. Your …
QUESTION 4 Merry Karthik is a bank executive who has just inherited a large sum of money. Having spent several years in the bank’s investments department, he is well aware of the concept of duration – convexity and decides to apply it to his bond portfolio. In particular, Merry intends to use RM1 million of …