Old MathJax webview

Please show work on a paper with explanations and details. NO SPREADSHEET

The stock under consideration has an expected return of 20% and a volatility of 12%. Suppose the risk-free rate is 15%, and the market portfolio has an expected return of 25% and a volatility of 18%. Illustrate numerically that given the market portfolio and the risk-free rate, an investment in the shares of KK Motors is not an efficient investment because: a. A combination of the risk free rate and the market portfolio will yield the same return as the investment in the stock of KK Motors Ltd, but with a lower risk. b. At combination of the risk free rate and the market portfolio offers the same level risk as the investment in the stock of KK Motors Ltd, but with a higher expected return. (30 marks) Total: [100 marks] Professor White, having reached the statutory retirement age, has retired and has been paid been paid his lump sum benefit of $200,000. The professor has no immediate need for the amount received and he is considering investing the amount in KK Motors Ltd, one of the top-performing stocks on the Ghana Stock Exchange. The stock under consideration has an expected return of 20% and a volatility of 12%. Suppose the risk-free rate is 15%, and the market portfolio has an expected return of 25% and a volatility of 18%. Illustrate numerically that given the market portfolio and the risk-free rate, an investment in the shares of KK Motors is not an efficient investment because: a. A combination of the risk free rate and the market portfolio will yield the same return as the investment in the stock of KK Motors Ltd, but with a lower risk. b. At combination of the risk free rate and the market portfolio offers the same level risk as the investment in the stock of KK Motors Ltd, but with a higher expected return. (30 marks) Total: [100 marks]