Question $1.$

a$)$ Capital asset pricing model

i$)$ In two sentences or so$,$ describe your favourite Project. In preparing to

undertake this project, you made an investment in a mutual fund last

year of GHS $10,000.$ The treasury bill rate was $18\%$ p$.$a$.,$ and you

expected a risk premium of $6$ percentage points per annum on your

investment. What idea is conveyed by underlying "expected" and "risk

premium" above? $[3$ marks$]$

ii$)$ List $20$ factors that may be responsible for the riskiness of the outcome

of this Project. $[3$ marks$]$

iii$)$ Classify the factors into systematic and unsystematic factors. $[3$ marks$]$

iv$)$ State the Capital Asset Pricing Model. Carefully define any symbols that you

may use. $[2$ marks$]$

v$)$ What is the essence of this model? $[2$ marks$]$

vi$)$ For the capital asset pricing model, what kind of risk is important? $[2$

marks$]$

vii$)$ Why is the other kind of risk not important $($not priced in financial

markets$)?[3$ marks$]$

viii$)$ A project with a beta of $2\mathrm{.}0$ has an expected rate of return of $36\%.$

What is the expected return on another project with a beta of $1\mathrm{.}5,$ if the

expected return on the market portfolio is $24\%?[4$ marks$]$

Financial Planning

No serious person would undertake a major project without a financial plan.

What is financial planning? Of what use are financial plans? What should be the

components of a well$-$prepared financial plan? $[3$ marks$]$