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Question 1 (Total 15 marks) Use the following information to answer the questions. Required: a) Assume that you have formed a two asset portfolio equally
Question 1 (Total 15 marks) Use the following information to answer the questions. Required: a) Assume that you have formed a two asset portfolio equally invested in Sonic Health Care and Healthscope shares. i) Calculate the expected return of your portfolio. (2 marks) ii) Calculate the standard deviation of your portfolio. (3 marks) b) Assume that you have formed a four asset portfolio equally invested in Sonic Health Care, Healthscope, 10 year Australian government bonds and the market index, S\&P/ASX 200. Calculate the beta of your portfolio. (4 marks) c) The 10-Year Australian government bond rate is currently 4%. Assuming the market risk premium of 6.5%, answer the following. i) Compute the required rate of return for Sonic Health Care. (2 marks) ii) Assuming the given expected return of 7% is annual, is Sonic Health Care overpriced or underpriced and why? (2 marks) iii) Based on your answer above, make a 'buy or sell' recommendation for Sonic Health Care. (1 mark) d) Fill the gap. The Security Market Line shows the relationship between and
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