Question 1 You are considering two securities, AHB Holdings Berhad and Hup Seng Industries Berhad, and the relevant information is given as below: div AHB Holdings Berhad date closing price 1/1/03 0.51 12/31/03 1.42 1/1/04 1.42 12/31/04 0.94 1/3/05 0.87 12/30/05 0.37 1/2/06 0.37 12/29/06 0.28 1/1/07 0.28 12/31/07 0.12 Hup Seng Industries Berhad date closing price 1/1/03 1.67 12/31/03 2.18 1/1/04 2.18 12/31/04 1.99 1/3/05 2 12/30/05 1.85 1/2/06 1.85 12/29/06 1.65 1/3/07 1.7 12/31/07 1.38 6/16/04 12/21/04 12/6/05 12/14/06 12/4/07 0.1 0.1 0.1 0.1 0.05 You plan to buy 100,000 shares from both companies. The current market price for AHB Holdings Berhad and Hup Seng Industries Berhad are $0.12 and $1.38 respectively. Assume that the correlation coefficient between the two stocks is 0.12, calculate the: a) Average return of the portfolio (11 marks) b) Standard deviation of the portfolio. (7 marks) c) You have also gathered the following information on KLCI from your broker: Year Annual Return 2003 14.163% 2004 | 10.605% 2005 8.551% 2006 | 7.146% 2007 21.512% You know that, at the time you want to form the portfolio, the risk-free rate is 3%. If the Capital Asset Pricing Model holds for the portfolio, is it good to create? Assume the beta for AHB Holdings Berhad and Hup Seng Industries Berhad are 1.033 and 0.397 respectively. (7 marks) Question 1 You are considering two securities, AHB Holdings Berhad and Hup Seng Industries Berhad, and the relevant information is given as below: div AHB Holdings Berhad date closing price 1/1/03 0.51 12/31/03 1.42 1/1/04 1.42 12/31/04 0.94 1/3/05 0.87 12/30/05 0.37 1/2/06 0.37 12/29/06 0.28 1/1/07 0.28 12/31/07 0.12 Hup Seng Industries Berhad date closing price 1/1/03 1.67 12/31/03 2.18 1/1/04 2.18 12/31/04 1.99 1/3/05 2 12/30/05 1.85 1/2/06 1.85 12/29/06 1.65 1/3/07 1.7 12/31/07 1.38 6/16/04 12/21/04 12/6/05 12/14/06 12/4/07 0.1 0.1 0.1 0.1 0.05 You plan to buy 100,000 shares from both companies. The current market price for AHB Holdings Berhad and Hup Seng Industries Berhad are $0.12 and $1.38 respectively. Assume that the correlation coefficient between the two stocks is 0.12, calculate the: a) Average return of the portfolio (11 marks) b) Standard deviation of the portfolio. (7 marks) c) You have also gathered the following information on KLCI from your broker: Year Annual Return 2003 14.163% 2004 | 10.605% 2005 8.551% 2006 | 7.146% 2007 21.512% You know that, at the time you want to form the portfolio, the risk-free rate is 3%. If the Capital Asset Pricing Model holds for the portfolio, is it good to create? Assume the beta for AHB Holdings Berhad and Hup Seng Industries Berhad are 1.033 and 0.397 respectively. (7 marks)