please show all workings and where it says explain please explain appropriately as this is a masters level. please this got meet the united kingdom standards and be aware of plagiarism and collusion. Document Preview: Page 1 of 2 Fin-40002 Financial Markets Assignment 2 The following is the second of three exercises that form the coursework assessment component for Fin-40002. The coursework is worth 15% of the total marks overall and these marks will be based upon the best two exercises of the three you submit. Each exercise is equally-weighted. You must submit all three Assignments. The Assignment must be your own work: it is not a Group Work activity. The penalties for plagiarism and collusion are severe and may result in you being awarded a zero mark for the Assignment or the module. Answers must be presented clearly and marks will be awarded for presentation. You must show all calculations and necessary working out. Answers not showing supporting calculations will be awarded zero. Hand-in Date: 10 am, Wednesday 4th December 2013;Darwin Lecture Theatre: late submissions awarded zero. Answer ALL questions: 50 Marks 1. Information about two diversified risky portfolios is given in the Table below: Expected Return, E[r] Standard Deviation, s P1 18% 24% P2 14% 20% a. Assuming a risk-free rate of 5%, calculate the Sharpe ratio for P1 and for P2. Which portfolio is likely to be the Market Portfolio, PM? Explain briefly the rationale for your answer. 4 marks b. Consider the portfolio you have chosen in (a) as the market portfolio. (If you have not been able to answer part a, use one of P1 or P2 as the market portfolio for subsequent questions). Consider the following asset: Expected Return E[r] Standard Deviation, s Coefficient of correlation with the market portfolio,? Stock A 10% 16% 0.80 Determine the beta coefficient (?A) for stock A. Is stock A fairly priced, undervalued or overvalued according to CAPM? If Stock A is undervalued or overvalued, indicate by how much. Explain your answer. 6 marks 2. Stock A has an expected return of 12% and? = 1. Stock B has an expected return of 13% and? = 1.5. The market?s expected return is 11% and rf = 5%. a) What is the alpha of each... Attachments: Assignment-2-....pdf
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