PLEASE SOLVE THE QUESTIONS USING THE METHODS AND FORMULAS SHOWN IN "CORPORATE FINANCE 2017 4TH EDITION CHAPTER 8: FUNDAMENTALS OF CAPITAL BUDGETING'

Risk and return

You are considering an investment in the stock market and have identified three potential stocks, they are Crown (ASX: CWN), Tencent (HKG: 0700) and Commonwealth Bank (ASX: CBA). The historical prices for the past 10 years are shown in the table below. Assumenodividend is distributed during this period.

1. (6 marks)

Calculate the return and risk (standard deviation) of each stock.

2.(3 marks)

Explain the relation (positive or negative) between risk and return based on your answers in part (1).

3.(6 marks)

Calculate the correlation coefficient between (a) Crown and Tencent and (b) Tencent and CBA.

4.(3 marks)

Calculate the expected (annual) return and standard deviation if you owned a portfolio consisting of 50% in Crown and 50% in Tencent.

5.(3 marks)

Calculate the expected (annual) return and standard deviation if you owned a portfolio consisting of 40% in CBA and 60% in Tencent.

6.(4 marks)

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