QUESTION $2[30$ MARKS$]$

$($a$)$ Calculate the expected return on Franky Ltd using the Capital Asset Pricing Model

$($CAPM$),$ if the return on short$-$term government bonds is $5\%,$ while the expected

rate of return of the market, with a beta measure of $0\mathrm{.}9,$ is $14\%.$

$($b$)$ Show and interpret the result of the expected rate of return on the stock if $$

changes to $1\mathrm{.}5.$

$($c$)$ 'All risks in a portfolio, can be diversified away'. Discuss.

$($d$)$ Analyse the assumptions under which the CAPM is being derived.

QUESTION $3[30$ MARKS$]$

$($a$)$ Outline the different forms of Market Efficiency.

$($b$)$ Critically discuss about the differences between "Exchange Traded Options"

$($ETO$\text{'}$s$)$ and "Over the Counter" $($OTC$\text{'}$s$).$

$($c$)$ 'Beta' is a very common measure. Discuss, to what extent it is very useful in

portfolio analysis.