Question: The table below provides the possible returns for two securities ALEX and JAMES: SCENARIO PROBABILITY ALEX JAMES I 0.6 -4% 15% II 0.4 12% -6%

The table below provides the possible returns for two securities ALEX and JAMES:

SCENARIO PROBABILITY ALEX JAMES
I 0.6 -4% 15%
II 0.4 12% -6%

(a) If you are considering investing RM45,500 in ALEX, and RM19,500 in JAMES, what are the securities portfolio weights?

(b) What are the possible returns for your investment portfolio under scenarios I and II?

(c) What are the expected return and standard deviation of returns for your investment portfolio?

(d) If your investment portfolios beta is 0.06, the risk-free interest rate is 3.5%, and the market risk premium is 6%, what is the portfolios required rate of return?

(e) What should the beta of the investment portfolio be, if you wish to invest in it? Explain.

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