Part A

Answer (A)
Here we are taking the B as actual amount of borrowing after deducting the existing balance of $
4000. Because bank requires depositing 20% of loan into current bank balance. So the amount of
borrowing will be higher than needed amount of $24000.
So that

B 0.2B + $4000 = $240000

$240000$4000
B=
10.2

= $ 295000

So the $ 295000 should be borrowed.

Interest rate will be charged at 3+1= 4%.
Interest amount payable on the loan:

Interest = Principal x Rate x Time

= $ 295000 x 0.04 x 3/12
= $ 2950
So annual rate of interest on amount borrowed:

Intrest 1
APR = x
Principal Time
$ 2950 1
= x
$ 240000 3/12

= 0.04916
= 4.92 %
 Answer (B)

Here we are taking the B as actual amount of borrowing after deducting the existing balance of
$ 4000. Because bank requires depositing 20% of loan into current bank balance. In this option
bank will charge 3 % interest rate but bank will deduct the interest from loan amount of
borrowing, so the amount should be equal to $ 240000.

So,

B 0.2B + $ 4000 = $ 240000

$ 240000$ 4000
B= 3
10.20.03 x 12

= $ 297791.80
Interest = Principal x Rate x Time
= $ 297791.80 x 0.03 x 3/12
= $ 2233.44
Intrest 1
APR = x
Principal Time

$ 2233.44 1
= x
$ 240000 3/12

= 0.03722
= 3.72 %
In option (b) the interest rate is lower than the option (a) so I will accept the option B.
Part B
Given Information

SHARE PERCENTAGE BETA EXPECTE

OF PORTFOLIO D RETURN
HARVEY NORMAN HOLDINGS 20% 1.00 16%
LIMITED
NATIONAL AUSTRALIA BANK LTD 30% 0.85 14%
QANTAS AIRWAYS LIMITED 15% 1.20 20%
ORIGIN ENERGY LTD 25% 0.60 12%
BHP BILLITON LIMITED 10% 1.60 24%

Answer (A)
Expected Return on Portfolio:

EP = (w1 x r1) + (w2 x r2)+ (wn x rn)

W1 = Percentage investment 1in Portfolio
r1 = Expected Return of Investment 1

= (0.20x0.16) + (0.30x0.14) + (0.15x0.20) + (0.25x0.12) +

(0.10x0.24)
=0.158
=15.8
 Answer (B)
Portfolio Beta:

= (w1 x 1) + (w2 x 2)+ (wn x n)

W1 = Percentage investment 1in Portfolio
2 = Beta of investment 1

= (0.20x1) + (0.30x0.85) + (0.15x1.20) + (0.25x0.60)

+ (0.10x1.60)
=0.945
=0.95
Answer (C)

Answer (D)

From the portfolio all of the included five shares come out as winners because their
expected return is greater than the portfolio required return predicted based on their level
of systematic risk by Capital Asset Pricing Model.

Answer (E)

The conclusion considered as less than certain because conclusions are derived as per the
accuracy of the estimated beta. If the systematic risk of the shares is understated by the
estimates then the required return based on Capital Asset Pricing Model will also be
understated.