Student number

MAN234: Tutorial Assignment 1

Instructions
1. This is a group assignment, max of 4 students and min 3.
2. Open book assessment. Your laptop or any other gadget that links
you to the universe may not be used.
3. The solution MUST BE COMPLETED on question paper failure to
do so will result in zero points to your team.
4. Show all workings.
Duration 30 min
Question 1
Return (R)

D
C

Expected

Return

Risk ( )
Risk
The above alpha letters represent portfolios on a set of X and Y axis. Please
answer the following questions:
A) Which portfolio/s represents the lowest risk and lowest return? (1)
A
B) Which portfolio/s represents the highest risk and highest return? (1)
D
C) Which portfolio is preferred between portfolio C and B? (1)
C
D) Which portfolio, in all likelihood (best alternative), would a risk-averse
investor prefer? (1)
C
E) Which portfolio, in all likelihood, would a risk-neutral investor prefer? (1)

D
Question 2

Return (R)
Expected
Return
Rf

Beta

Systematic Risk
The above graph represents the SML of South African stocks. The alpha letters
represent the beta coefficients of Asset A to Asset D. Please answer the following
questions.
a) Which asset is expected to offer the highest return? (1)
D
b) Which asset is expected to offer the lowest return? (1)
A
c) Assume Asset B represents the market portfolio. What do you expect its beta
to be? (1)
1
d) In all likelihood, which asset is expected to offer the highest total risk
between Asset B and Asset C? (1)
C
Question 3
A) An investor is concerned about increasing risk and is therefore considering
adjusting his investment portfolio. He/she has to decide among a group of
assets. In the first group of assets , the correlation coefficient is 0.9. In the
second group of assets, the correlation coefficient is -0.5. Which group of assets
based on the correlation coefficient should he/she choose? (1)
Chooses correlation coefficient of -0.5
B) Which of the following is an example of systematic risk? (1)
a) SABMiller posts higher than expected earnings.
b) MTN announces lower earnings expectation.
c) The national trade deficit is higher than expected.
C) Which of the following is an example of unsystematic risk? (1)
d) SABMiller posts higher than expected earnings.
e) MTN announces lower earnings expectation.

f) The national trade deficit is higher than expected .