Return, Risk & Diversification

$1.$ The table provides data on two shares, A and B$,$ the market portfolio M and the risk$-$free asset

F$.$

Expected Return $(\%)$ Standard Deviation $(\%)$

Share A $18\mathrm{.}012\mathrm{.}0$

Share B $10\mathrm{.}08\mathrm{.}0$

Market Portfolio M $15\mathrm{.}49\mathrm{.}0$

Risk$-$free Asset F $6\mathrm{.}00$

Correlation between the returns on A and B $0\mathrm{.}2$

i$)$ Calculate the expected returns and standard deviations for the following portfolios:

a$)$ Portfolio X $20\%$ in share A and $80\%$ in share B$.$

b$)$ Portfolio P $$ lend $70\%$ in asset F and the remaining funds in portfolio M$.$

c$)$ Portfolio Q $$ borrow $30\%$ in asset F and all the funds in portfolio M$.$

ii$)$ Plot the Capital Market Line, shares A and B$,$ and portfolios X$,$ P and Q$.$

iii$)$ Based on the CAPM:

a$)$ Calculate the beta coefficient for share A$.$

b$)$ Calculate the required return on share B if its beta coefficient is $0\mathrm{.}6.$ Is share B

underpriced, overpriced or correctly priced according to the CAPM?

c$)$ Plot the Security Market Line and shares A and B$.$