QUESTION 5 5 points Save AnsW Don invests three-fourth in General Motors Company and remainder in Nestle Corporation. The expected return from General Motors Company and Nestle Corporation is 15% and 12%, respectively. While the standard deviation from General Motors Company and Nestle Corporation is 9% and 7%, respectively. a. Calculate the expected return of a portfolio and portfolio risk if correlation between the two stocks is 0.5. (1+2.5 = 3.5 marks) b. If Don adds more stocks from different sectors in his portfolio, what will happen (increase, decrease, remain same) to portfolio risk? Briefly justify your answer. No calculation required. (0.5+1 = 1.5 marks) OR Given the following data about the hypothetical company Pharma Care Inc. Beta = 2.5 Mark Risk Premium = 4.5% %3D Expected Return on the Market Portfolio = 8% a. Calculate the required return using Capital Asset Pricing Model (CAPM) equation. (3.5 marks) b. For this part only, If the number of the stocks increases, what will be the effect (increase, decrease, remain same) on systematic risk? Briefly justify your answer. No calculation required. (0.5+1 = 1.5 marks) 2.

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