FIN2601
Assignment 01
Unique No: 792539
Due 16 April 2026
, Question 1
1.1 Expected return of the market portfolio
The expected market return is calculated using the probability-weighted average
formula:
𝐸(𝑅𝑚 ) = ∑(𝑝𝑖 × 𝑅𝑖 )
Substituting the given values:
= (0.1 × 10%) + (0.2 × 12%) + (0.4 × 13%) + (0.2 × 16%) + (0.1 × 17%)
Step-by-step calculation:
= 1.0% + 2.4% + 5.2% + 3.2% + 1.7% 𝐸(𝑅𝑚 ) = 13.5%
The expected return of the market portfolio is therefore 13.5%. This represents the
average return investors anticipate, taking into account all possible market outcomes
and their probabilities (Bodie, Kane & Marcus, 2021).
1.2 Portfolio beta and interpretation
Portfolio beta is calculated as a weighted average of individual betas:
𝛽𝑝 = ∑(𝑤𝑖 × 𝛽𝑖 )
Total investment = R500 million
First calculate weights:
Freight and cargo
160/500 = 0.32
Warehousing
Assignment 01
Unique No: 792539
Due 16 April 2026
, Question 1
1.1 Expected return of the market portfolio
The expected market return is calculated using the probability-weighted average
formula:
𝐸(𝑅𝑚 ) = ∑(𝑝𝑖 × 𝑅𝑖 )
Substituting the given values:
= (0.1 × 10%) + (0.2 × 12%) + (0.4 × 13%) + (0.2 × 16%) + (0.1 × 17%)
Step-by-step calculation:
= 1.0% + 2.4% + 5.2% + 3.2% + 1.7% 𝐸(𝑅𝑚 ) = 13.5%
The expected return of the market portfolio is therefore 13.5%. This represents the
average return investors anticipate, taking into account all possible market outcomes
and their probabilities (Bodie, Kane & Marcus, 2021).
1.2 Portfolio beta and interpretation
Portfolio beta is calculated as a weighted average of individual betas:
𝛽𝑝 = ∑(𝑤𝑖 × 𝛽𝑖 )
Total investment = R500 million
First calculate weights:
Freight and cargo
160/500 = 0.32
Warehousing
