2. a. Orchestra Incorporated has an investment fund which would be invested in different stocks from different companies. The total capital to be invested amounts to GH800 million Stock 1 2 3 4 S 6 7 Investment GH million 200 120 130 140 110 40 60 Beta 0.3 1.2 1.5 3.1 2.0 1.3 1.4 Investment analysis of the beta coefficients of these investment funds was deduced as the weighted average of the investment funds. Currently the rate on T-bills is 800 Bp. The same analysis also portray that returns from the market have the following probability distribution for the next period. Probability 0.2 0.3 0.4 0.1 0.1 0.2 0.3 Market return% 8 9 15 11 12 13 10 i. Deduce the estimated SML equation ii. Deduce the required rate of return of the fund of the next period iii. Assume Gabby the CEO of Orchestra Investment receives a proposal of an additional new stock which requires an amount of GH30 million with an expected return of 14% and its estimated beta coefficient is 1.2 Required 8. By analyzing the new stock provide your decision on whether or not the stock should be bought B. Deduce the expected rate of return when the company takes an indifferent stand to purchasing the stock. b. Explain how expected return and liquidity can affect the demand for 3-month treasury bills in Ghana. Page 6 of 8