Step-by-step solution file
Mr. Mlachake is currently holding a portfolio consisting of
Mr. Mlachake is currently holding a portfolio consisting of shares of four companies quoted on the Bahati Stock Exchange as follows:
Number of shares held
Market price per share
Expected return on equity in the next year
The current market return is 14% per annum and the treasury bills yield is 9% per annum.
(i) Calculate the risk of Mlachake?s portfolio relative to that of the market. ( 5 marks)
(ii) Explain whether or not Mlachake should change the composition of his portfolio. ( 9 marks)
i)The risk of the portfolio in this case will be measured by portfolio Beta (Bp)
relative to market portfolio beta.
Where wn = weight based on market values of shares.
This question was answered on: Feb 21, 2020
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