David is a professional investor who actively trade on ASX. She has a risk balanced investment portfolio that include of Golden Share and Silver Bond. Her portfolio has been established for five years.

Required:

1. Assume that beta coeffient of Golden Share in David’s portfolio is 1.3, the risk premium on the stocks of the same industry is 4.7%, the risk-free rate of return is 4.2% and the inflation rate was 1.5 %. Calculate expected return of the Golden Share in David’s portfolio using Capital Asset Pricing Model (CAPM)?
2. If David’s portfolio has provided her with returns of 10.5%, -8.5%, 12.7%, 14.5% and 13.8% over the past five years, respectively. Calculate the geometric average return of the portfolio for this period? 
3. Assume that David bought 500 Golden Share in her portfolio for total investment of $2500, now the market price of the stock is $15, the dividend paid for this stock is $5 per year. How much is the rate of return of this share?
4. Assume that the following forecast available for the economic situations and income from the portfolio in the coming year, calculate the expected return, variance and standard deviation of the portfolio.

5. Economic Situation	Probabilities	Return
   Boom	35%	18.5%
   Normal	40%	13%
   Recession	25%	- 2 %

Answer rating: 100% (QA)

The formula for expected return using CAPM model is Expected return risk free rate beta x market r... View the full answer