PORTIFOLIO INVESTMENT

The answer is 8.5%. Beta = portfolio risk / market risk. So the required beta of the portfolio is 0.5. So the expected return = 5% + 0.5 (12 - 5) = 8.5% BUT this cannot be asked in Paper F9. You can be required to use a beta to calculate a required return i.e. the last bit of my answer, but not the rest of this question.

Thanks for the help this means a lot to me.

You are welcome :-)

YOU Currently own shares in Buckeye Mutual Fund (BMF). Your broker calls and recommends buying shares in a small-capitalization fund managed by Wolverine Investment Group (WIG). Your broker says that this fund will provide significant diversification benefits for your existing holdings. She gives you the following statistics based on the performance of the two funds over the last year. (5 Marks) Std. Dev. 14% 11% 20% 12% a. Assume you can earn an average annual yield of 8% on a risk-free security. Which of these funds would be the optimal fund to combine with the risk-free security? Why? b. Using the fund you selected in part (a), how much portfolio weights in the fund and the risk-free security would be required to earn a target return of 22%? Describe this position. (7 Marks) Assume the covariance between the Buckeye and Wolverine funds is 0.00154. What would have been your average return and standard deviation over the last year if you placed 60% of your investment in Buckeye and 40% of your investment in Wolverine? (8 Marks) Wolverine Investment Grp. E(Return) Portfolio Buckeye Mutual Fund

What are you asking me? I am not answering the question for you! Watch our free lectures and then if you are struggling or you need help then ask. But not for us to answer a whole question!