SECTION A QUESTION 1 (COMPULSORY QUESTION) Suppose two ordinary shares traded on Ghana Stock Exchange: Eco Menz Ltd (Y1) and National Gas pipeline (Y2). The prices and dividends from these two companies were collected for three years on a quarterly basis ending 2017. Emmanuela is seeking your investment advice. Quarter GSE INDEX Y1 Close Y2 Close Dividend Y1 Return Y2 Return 1 2512 236.25 2 2050.8 159.82 588.77 497 5.75 5.75 -0.299 -0.146 1938.7 126 410 -0.174 -0.163 4 1722.3 114.25 379.51 6 -0.046 -0.060 5 1891.5 124.29 397.1 6.25 0.143 0.063 819 2045.8 172.79 425.05 6.25 0.441 0.086 2125.4 207.72 408.15 6.5 0.240 -0.024 2187.1 308.19 428.25 6.5 0.515 0.065 9 2237.3 285.85 487.62 6.75 -0.051 0.154 10 2192.22 230.75 516 6.75 -0.169 0.072 11 2297.66 217.44 528.02 7.1 -0.027 0.037 12 2430.05 248 541.26 7.1 0.173 0.039 i) Compute the individual average return of the two securities Y1, Y2 and explain the results. (4 Marks) ii) Suppose Emmanuela wish to put 2/3 of her capital in Y1 and 1/3 in Y2, calculate the portfolio return. iii) Calculate the individual risk of the two securities and explain the results. (2 Marks) (6 Marks) iv) Assume that the risk-free rate is given as 0.015, compute the sharpe ratio and price of risks for the two individual securities. (4 Marks) v) Compute coefficient of variation for the two securities. vi) Calculate the covariance for the two securities and explain the results. vii) Caculate the correlation coefficient and explain the results. viii) Suppose the Emmanuela decided to maintain the same proportions she used in question (ii) above, calculate the portfolio risk. (2 Marks) (3 Marks) (3 Marks) answers? vix) What is your advice to Emmanuela as to how to diversify the portfolio following your (4 Marks) a) Studies, Accra (2 Marks) (Total Marks 30)