111) Question 2 1) Explain efficient diversification and optimal portfolio theory. (3 Mark) 11) Given the following assets classes in the portfolio: Treasury Bills 50% Treasury Note 15% Corporate Bond 15% Equities 5% Mutual Funds 15% a) State and justify whether the portfolio is low, medium or aggressive with respect to risk appetite. (2 Mark) b) Explain each of the assets class in the portfolio above. (5 Mark) The Trustees of Amamomo Pension Scheme have contracted you as a consultant to help develop an asset allocation that will meet the profile of the funds as shown on the risk and return table: Return Risk Assets % (%) A 15 10 15 20 15 12 13 E 22 18 22 16 24 20 25 25 21 19 17 a) Determine the efficient frontier (hint: plot and sketch). (2 Mark) b) Which asset class fits in with the minimum-variance portfolio? (2 Mark) Page 2 of 6 B 18 D F G 20 J asset allocation that will meet the profile of the funds as shown on the risk and return table: Return Risk Assets (%) (%) A 15 10 B 18 15 20 15 D 12 13 E 22 18 F 22 16 G 24 20 H 25 25 I 21 20 J 19 17 a) Determine the efficient frontier (hint: plot and sketch). (2 Mark) b) Which asset class fits in with the minimum-variance portfolio? (2 Mark) Page 2 of 6 c) Which assets allocation will best suit the fund (i.e. are on efficient frontier)? (2 Mark) Given a risk-free rate of 10% and the market portfolio with return and risk as follows: Return (%) Risk (%) 12 5 15 7 18 15 23 20 d) Sketch the Capital Asset Line (hint plot) on the sketch in (a). (2 Mark) e) What is the optimal portfolio? Explain your answer. (2 Mark) (Total 20 Marks) 111) Question 2 1) Explain efficient diversification and optimal portfolio theory. (3 Mark) 11) Given the following assets classes in the portfolio: Treasury Bills 50% Treasury Note 15% Corporate Bond 15% Equities 5% Mutual Funds 15% a) State and justify whether the portfolio is low, medium or aggressive with respect to risk appetite. (2 Mark) b) Explain each of the assets class in the portfolio above. (5 Mark) The Trustees of Amamomo Pension Scheme have contracted you as a consultant to help develop an asset allocation that will meet the profile of the funds as shown on the risk and return table: Return Risk Assets % (%) A 15 10 15 20 15 12 13 E 22 18 22 16 24 20 25 25 21 19 17 a) Determine the efficient frontier (hint: plot and sketch). (2 Mark) b) Which asset class fits in with the minimum-variance portfolio? (2 Mark) Page 2 of 6 B 18 D F G 20 J asset allocation that will meet the profile of the funds as shown on the risk and return table: Return Risk Assets (%) (%) A 15 10 B 18 15 20 15 D 12 13 E 22 18 F 22 16 G 24 20 H 25 25 I 21 20 J 19 17 a) Determine the efficient frontier (hint: plot and sketch). (2 Mark) b) Which asset class fits in with the minimum-variance portfolio? (2 Mark) Page 2 of 6 c) Which assets allocation will best suit the fund (i.e. are on efficient frontier)? (2 Mark) Given a risk-free rate of 10% and the market portfolio with return and risk as follows: Return (%) Risk (%) 12 5 15 7 18 15 23 20 d) Sketch the Capital Asset Line (hint plot) on the sketch in (a). (2 Mark) e) What is the optimal portfolio? Explain your answer. (2 Mark) (Total 20 Marks)