Question 3 (This question has three parts (a), (b), and (c))

The following table shows the return over a 6-month period for the market and for the stock XYZ Ltd. Month Market Return XYZ Ltd 1 -0.08 -0.11 2 0.05 0.07 3 0.11 0.15 4 -0.06 -0.09 5 0.08 0.02 6 0.03 0.05

(a) Using historical return, calculate the expected return and standard deviation of XYZ Ltd and the market.

(b) Which one is a better investment based on expected return and risk alone? Explain.

(c) What is the beta of the market? If the correlation between XYZ Ltd and the market is 0.935, what is the beta of XYZ Ltd?

(4 + 3 + 3 = 10 marks)