QUESTION 2 Alissa is evaluating several investment options (A, B, C and D)...

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Accounting

QUESTION 2

Alissa is evaluating several investment options (A, B, C and D) with the help of Capital Assets Pricing Model (CAPM) and Security Market Line as shown in the diagram below.

a) Given the information from the chart below, determine the value of X and Y.

(8 marks)

b) If Investment D is currently giving a return of 12%, what would be the best decision for Alissa according to the CAPM?

(2 marks)

image

SECURITY MARKET LINE Y required Return (%) X 2 0 0.5 1 1.5 2 2.5 Beta A B D

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