As an investment manager you are given the following information : Investment in equity share of Initial price (₹) Dividends (₹) Market price at the end of the year (₹) Beta Coil Ltd. 50 4 100 0.8 Sail Ltd. 70 4 120 0.7

Calculation of expected return on market portfolio Equity share of: Initial Price (P 0 ) Dividends (₹) Market price at the end of the year (P 1 ) Capital gains (P 1 - P 0 ) Coil Ltd. 50 4 100 50 Sail Ltd. 70 4 120 50 Lip Ltd. 90 4 270 180 Govt. Bonds 2,000 280 2,010 10 Total 2210 292 2500 290 Market return (R m ) = (Dividends + capital gains) / Share price at the beginning * 100 R m = (292 + 290) / 2210 * 100 = 582 / 2210 * 100 = 26.33% Calculation of rate of return of each security using CAPM R = R f + β (R m - R f ) Given R f = 14% or 0.14 Equity share of: Return Coil Ltd. 0.14 + 0.8 (0.2633 - 0.14) = 0.14 + 0.8 (0.1233) = 0.14 + 0.09864 = 0.23864 or 23.86% Sail Ltd. 0.14 + 0.7 (0.2633 - 0.14) = 0.14 + 0.7 (0.1233) = 0.14 + 0.08631 = 0.22631 or 22.63% Lip Ltd. 0.14 + 0.5 (0.2633 - 0.14) = 0.14 + 0.5 (0.1233) = 0.14 + 0.06165 = 0.20165 or 20.17% Govt. Bonds 0.14 + 0.99 (0.2633 - 0.14) = 0.14 + 0.99 (0.1233) = 0.14 + 0.122067 = 0.262067 or 26.21%