1. Determine the expected return and standard deviation of a two-asset portfolios comprised of Sharp Ltd and Blunt Ltd; Assume equal weightings of each share within the portfolio. Interpret your results and comment and illustrate the impact on risk when combining shares into a portfolio. What is the exact amount of risk reduction when combining these 2 shares in the portfolio? What has caused this risk reduction in the portfolio and what specific risk has been eliminated in this case?
2. Determine the systematic risk (Beta) for both shares. Interpret your answers. The use of excel functions should be used to calculate Beta (slope function in excel). What are the implications around asset pricing given the beta of each share. What are some documented limitations of beta when assessing risk?
3. Calculate the required return and the present value for both shares would you place on each share Furthermore, assume that Sharp Ltd's dividend has grown from $0.50 to $0.58 in the last 5-years and Blunt Ltd's dividend has increased from $1.10 to $1.34 over the last 5-years. The last observed 10-year government bond yield was 2%. What concerns does the research raise in regards to dividend valuation models? What have you chosen to be the market risk premium and why?