FIN2601
Assignment 01
Unique No: 792539
Due 16 April 2026
, Question 1
1.1 Expected return of the market portfolio
The expected return is calculated using the probability-weighted average of all possible
market returns.
Step 1: Write the formula
Expected market return
𝐸(𝑅𝑚 ) = ∑[𝑃𝑖 × 𝑅𝑖 ]
Step 2: Substitute the given values
𝐸(𝑅𝑚 ) = (0,1 × 10%) + (0,2 × 12%) + (0,4 × 13%) + (0,2 × 16%) + (0,1 × 17%)
Step 3: Calculate each component
= 1,0% + 2,4% + 5,2% + 3,2% + 1,7%
Step 4: Add the values
𝐸(𝑅𝑚 ) = 13,5%
The expected return of the market portfolio is therefore 13,5%.
1.2 Beta coefficient of the portfolio and interpretation
The portfolio beta is the weighted average of the individual betas, using the investment
proportions as weights.
Step 1: Determine total investment
Total capital = R500 million
Step 2: Determine weights of each subsidiary
Freight and cargo: 160/500 = 0,32
Warehousing and distribution: 120/500 = 0,24
Assignment 01
Unique No: 792539
Due 16 April 2026
, Question 1
1.1 Expected return of the market portfolio
The expected return is calculated using the probability-weighted average of all possible
market returns.
Step 1: Write the formula
Expected market return
𝐸(𝑅𝑚 ) = ∑[𝑃𝑖 × 𝑅𝑖 ]
Step 2: Substitute the given values
𝐸(𝑅𝑚 ) = (0,1 × 10%) + (0,2 × 12%) + (0,4 × 13%) + (0,2 × 16%) + (0,1 × 17%)
Step 3: Calculate each component
= 1,0% + 2,4% + 5,2% + 3,2% + 1,7%
Step 4: Add the values
𝐸(𝑅𝑚 ) = 13,5%
The expected return of the market portfolio is therefore 13,5%.
1.2 Beta coefficient of the portfolio and interpretation
The portfolio beta is the weighted average of the individual betas, using the investment
proportions as weights.
Step 1: Determine total investment
Total capital = R500 million
Step 2: Determine weights of each subsidiary
Freight and cargo: 160/500 = 0,32
Warehousing and distribution: 120/500 = 0,24
