Your analysts also believe that each assets risk can be assessed in two ways: in isolation and as part of the firms diversified portfolio of assets. The risk of the assets in isolation can be found by using the standard deviation and coefficient of variation of returns over the past 10 years. The capital asset pricing model (CAPM) can be used to assess the assets risk as part of the firms portfolio of assets. Applying some sophisticated quantitative techniques, your analysts estimated betas for assets X and Y of 1.60 and 1.10, respectively. In addition, they found that the risk-free rate is currently 7% and that the market return is 10%.

Your bank has been asked by one of its corporate clients to evaluate the risk and return of two assets, X and Y. The firm is considering adding these assets to its diversified asset portfolio. The average annual rate of return and standard deviation given below summarize the firm's analysis over the preceding 10 years, 2008-2017. Asset X Asset Ye Average annual rate of return 11.74% 11.14% Standard Deviation 8.90% 2.78% To Do: 1) (a) To find the coefficient of variation of the returns for each asset over the 10-year period 2008-2017. (b) To evaluate and discuss the return and risk associated with each asset. Which asset appears to be preferable? Explain. (6 Marks)+ 2) (a) Use the CAPM to find the required return for each asset. (b) Compare this value with the average annual returns. Which asset should be considered as a better choice? (4 Marks)