You are interested in investing in Australian shares and decide to investigate the shares of two Australian

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Question:

You are interested in investing in Australian shares and decide to investigate the shares of two Australian companies: Rio Tinto Group (RIO.AX) and Westpac Banking Corporation (WBC.AX). Below are the opening prices, closing prices for RIO and WBC for 2022 and dividends paid by WBC and RIO during 2022.

RIO WBC Month Opening Price Closing Price Opening Price Closing Price Jan 113.83 110.31 19.37 21.13 Feb 109.29 127.19 20.80 23.82 Mar 128.50 110.75 23.87 24.41 Apr 112.14 121.15 24.42 24.98 May 121.00 123.73 25.71 26.42 June 124.00 126.64 26.29 25.81 July 127.85 133.42 25.94 24.52 Aug 132.95 112.06 24.65 25.82 Sep 110.40 100.18 25.63 26.00 Oct 97.86 90.29 25.61 25.67 Nov 90.30 93.50 24.50 20.52 Dec 94.34 100.11 20.50 21.35 Share Date Dividend Date Dividends RIO 4/3/2022 1.1963 12/8/2022 2.5064 WBC 13/5/2022 0.58 5/11/2022 0.60 Source: http://au.finance.yahoo.com

1. Using the prices above calculate for RIO and WBC the percentage return for each month for the period Jan 2022 - Dec 2022..The percentage return (%) for each month is the return you would receive if you bought an asset on the first day of the month (opening price) and sold it on the last day of the month (closing price) and include any dividends paid in that month.)

2. Using the percentage returns calculated in part 1, calculate the standard deviation of the monthly percentage return for RIO and WBC for the period Jan 2022 - Dec 2023.

3. Calculate annual holding period returns of RIO and WBC for the year 2022.

4. Now assume we have portfolio consisting of only RIO and WBC shares. If the covariance between RIO and WBC is 0.00078, calculate the return and standard deviation of a portfolio where 35% of funds are invested in RIO and rest in WBC. (Hint: Use annual holding period returns for calculation of portfolio returns)

5. Comparing the answers from parts 1, 2 and 4 analyze the differences and evaluate why investing in a portfolio of assets is preferable for an investor. (Word limit 500 words) 10 marks note: Another 10 marks are allocated for formatting and references. Details are given in the marking criteria and assignment rubric.