FIN2601 Assignment 1 Semester 1 2026 (Answer Guide) 792539 – Due 16 April 2026

FIN2601 Assignment 1 Semester 1 2026 (Answer Guide) 792539 – Due 16
April 2026
VERIFIED AND CERTIFIED ANSWERS. WRITTEN IN REQUIRED FORMAT AND WITHIN GIVEN
GUIDELINES. IT IS GOOD TO USE AS A GUIDE AND FOR REFERENCE, NEVER PLAGARIZE.
Thank you and success in your academics.
UNISA, 2026




QUESTION 1
[18 Marks]

Introduction
This question assesses the application of portfolio theory and the Capital Asset Pricing
Model (CAPM) in evaluating systematic risk and required returns. Transportation Hero has
invested in five subsidiaries with differing beta coefficients, which reflect varying exposure
to systematic (market) risk. To answer the question, it is necessary to calculate the
expected market return, determine the portfolio beta using weighted averages, and finally
compute the required rate of return using CAPM principles (Brealey, Myers & Allen, 2020).


Question 1.1: Expected Return of the Market Portfolio
[6 Marks]

, Step 1: Formula for expected market return
The expected return of the market portfolio is calculated as the probability-weighted
average of all possible market returns:

E(Rm) = ∑(Pi × Ri)

Where:

Pi = probability of a given market return
Ri = corresponding market return



Step 2: Apply the given probability distribution
Probability Market Return Weighted Return

0.10 10% 0.10 × 10% = 1.00%


0.20 12% 0.20 × 12% = 2.40%


0.40 13% 0.40 × 13% = 5.20%


0.20 16% 0.20 × 16% = 3.20%


0.10 17% 0.10 × 17% = 1.70%




Step 3: Calculate the expected market return

E(Rm) = 1.00% + 2.40% + 5.20% + 3.20% + 1.70%

E(Rm) = 13.50%



Answer to Question 1.1
The expected return of the market portfolio is 13.5%.




Question 1.2: Portfolio Beta and Interpretation