cooperate financial management

(a) An investor invested 65% of his money in stock A and 35% in stock B and constructed a portfolio. The return data for both stock A and B are given below. Year Return on stock A (9%) Return on stock B (%) Weight=0.65 Weight=0.35 2009 0.15 1.75 2010 5.21 1.12 2011 7.23 0.25 2012 1.22 6.32 2013 3.22 3.12 2014 0.25 2.25 (1) Calculate the correlation coefficient between Stock A and Stock B. (1 mark) (ii) Calculate the portfolio standard deviation using the above data. (3 marks) (iii) Will this portfolio selection reduce the risk efficiently? Please explain. (0.5+2.5 = 3 marks) (b) According to the capital asset pricing model the expected return on shares in the Gamma Corporation is 10.6%. The beta value associated with these shares is 0.95 and the risk three rate of interest is 49%. Given this information, calculate the market risk premium and the expected return on the market portfolio? (3 marks) For the toolbar, press ALT-F10 (PC) or ALT+FN+F10 (Mac) Type here to search