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A well-diversified portfolio is vital to any investor's success. As an individual investor, you need...

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Question

Accounting

A well-diversified portfolio is vital to any investor's success. As an individual investor, you need to know how to determine an asset allocation that best conforms to your personal investment goals and risk tolerance.

You are considering in investing a portfolio of stocks, i.e. Apple, Orange, and Mango. The risk-free rate is 6 percent and the market risk premium is 9 percent.

Stock Amount invested (RM) Beta

Apple 25,000 0.70

Orange 40,000 1.50

Mango 35,000 1.10

a.

Determine the beta of the portfolio.

(6 marks)

b.

Using the Capital Asset Pricing Model (CAPM), determine the required rate of return on the portfolio.

(3 marks)

c.

The project is expected to earn an annual rate of return of 11%. Based on your calculation in (b), would you recommend this investment? Justify your answer.

(2 marks)

d.

If you have invested RM153,000 today in an account with a quoted annual interest rate of 10% with monthly compounding of interest, determine the value of the investment after 13 years.

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