ExamBuddy! Task 3
Topics 6 – Portfolio Theory and Asset Pricing II and Topic 7 – Capital Budgeting I
Question 1 [2 + 2 + 3 = 7 marks]
Consider the following information relating to Asset C, the 10-year government bond rate (which can be
used as a proxy for the risk-free rate of return) and the ASX 200 index (which can be used as a proxy for
the market portfolio).
Asset Standard Expected Correlation Correlation Correlation
deviation of return (p.a.) with Asset C with 10-year with ASX200
returns (p.a.) bonds
Asset C 0.35 ? 1.00
10-year gov’t bond 0 0.03 0 1.00
ASX200 0.15 0.10 0.65 0 1.00
1. What is the beta of Asset C? (to 2 decimal places)
2. According to the CAPM what is the expected return of Asset C? (express as a percentage figure
to 2 decimal places e.g. 50.04%)
3. According to the CAPM what is the beta and expected return of a portfolio consisting of a 50%
investment in Asset C and a 50% investment in a diversified portfolio that replicates the
ASX200? (express your answers as in (a) and (b))
Question 2 [5 marks]
State whether the following statement is true or false and provide a hand-written explanation of your
answer (your answer is limited to eight horizontal lines drawn on an A4 page in portrait orientation).
The great advantage of the IRR technique over the NPV technique is that you don’t need to calculate a
benchmark discount rate applicable to the project. This is useful as we don’t really have a way of estimating
a discount rate that can be used in the NPV analysis of a project.
*The ExamBuddy! grade for the task will be as the following:
, 3 marks for submitting your work. Your submission needs to be a genuine and reasonable attempt. There
needs to be a genuine and reasonable attempt to solve the question. Refer to this document for further
information.
2 marks split evenly for completing on time the self-assessment (1) and peer review (1) according to the
rubric.
You must leave a comment for the last rubric question: "Do you believe that the student you are reviewing
made a GENUINE or REASONABLE attempt at completing the task?" for both the self-assessment and peer
review.
Make sure you leave a constructive and meaningful comment(s). No marks are awarded (deducted) for
getting the correct (incorrect) answers, so do not worry about it. The focus is on a reasonable and genuine
attempt! Please refer to the last rubric question for further instructions.
Your mark will be scaled automatically to the corresponding proportion in your ExamBuddy! grading (E.g.
3 marks are worth 60/100).
Please scan your handwritten workings from all the questions as 1 single PDF file. It is really helpful to
write your work to simulate the process you will follow in your final exam and make sure your handwriting
is legible. Please refer to the following guide (how to convert an image to PDF), if needed: how to convert
an image to PDF?
Only after you submit your work you will be able to participate in the self-assessment, review your buddy
and have access to the solution. Failure to hand in your work by the submission deadline will attract a
zero mark for that task!
Topics 6 – Portfolio Theory and Asset Pricing II and Topic 7 – Capital Budgeting I
Question 1 [2 + 2 + 3 = 7 marks]
Consider the following information relating to Asset C, the 10-year government bond rate (which can be
used as a proxy for the risk-free rate of return) and the ASX 200 index (which can be used as a proxy for
the market portfolio).
Asset Standard Expected Correlation Correlation Correlation
deviation of return (p.a.) with Asset C with 10-year with ASX200
returns (p.a.) bonds
Asset C 0.35 ? 1.00
10-year gov’t bond 0 0.03 0 1.00
ASX200 0.15 0.10 0.65 0 1.00
1. What is the beta of Asset C? (to 2 decimal places)
2. According to the CAPM what is the expected return of Asset C? (express as a percentage figure
to 2 decimal places e.g. 50.04%)
3. According to the CAPM what is the beta and expected return of a portfolio consisting of a 50%
investment in Asset C and a 50% investment in a diversified portfolio that replicates the
ASX200? (express your answers as in (a) and (b))
Question 2 [5 marks]
State whether the following statement is true or false and provide a hand-written explanation of your
answer (your answer is limited to eight horizontal lines drawn on an A4 page in portrait orientation).
The great advantage of the IRR technique over the NPV technique is that you don’t need to calculate a
benchmark discount rate applicable to the project. This is useful as we don’t really have a way of estimating
a discount rate that can be used in the NPV analysis of a project.
*The ExamBuddy! grade for the task will be as the following:
, 3 marks for submitting your work. Your submission needs to be a genuine and reasonable attempt. There
needs to be a genuine and reasonable attempt to solve the question. Refer to this document for further
information.
2 marks split evenly for completing on time the self-assessment (1) and peer review (1) according to the
rubric.
You must leave a comment for the last rubric question: "Do you believe that the student you are reviewing
made a GENUINE or REASONABLE attempt at completing the task?" for both the self-assessment and peer
review.
Make sure you leave a constructive and meaningful comment(s). No marks are awarded (deducted) for
getting the correct (incorrect) answers, so do not worry about it. The focus is on a reasonable and genuine
attempt! Please refer to the last rubric question for further instructions.
Your mark will be scaled automatically to the corresponding proportion in your ExamBuddy! grading (E.g.
3 marks are worth 60/100).
Please scan your handwritten workings from all the questions as 1 single PDF file. It is really helpful to
write your work to simulate the process you will follow in your final exam and make sure your handwriting
is legible. Please refer to the following guide (how to convert an image to PDF), if needed: how to convert
an image to PDF?
Only after you submit your work you will be able to participate in the self-assessment, review your buddy
and have access to the solution. Failure to hand in your work by the submission deadline will attract a
zero mark for that task!