Questions:

1. Calculate the expected return and standard deviation for the shares of company A and B.

2. Using your knowledge of financial theory calculate the required rate of return for the shares in company A and B, given their risk characteristics

3. Further, for both company A and B, calculate the shares intrinsic value. Based on your calculated intrinsic value, identify whether you would buy or sell the shares, using the 2021 share price for each share as a reference value. Provide justification for your decision.

Your client has asked you to re-evaluate your risk and return expectations for their investments due to the current geopolitical environment. As such, the following information regarding the characteristics and historical share prices of two companies (A and B) is provided for this analysis. Information regarding their relation to the wider market is also detailed. Company A Company B $0.75 Current dividends per share (just paid) $0.06 Current Beta 1.4 0.9 Growth in dividends 2% 1% Date Share Price A Share Price B 2017 $0.98 $13.78 2018 $1.10 $13.31 2019 $1.01 $15.57 2020 $1.30 $14.81 2021 $1.19 $16.95 Other information: Current risk-free rate of return: 0.5% p.a. Current return on market portfolio: 5.5% p.a