Question: Question 1 (15 marks) Risk and Return Sample Question Use the following information for below questions. BHP Ltd WOW Ltid S&P/ASX200 Monthly Expected 2.12% 0.89%

Question 1 (15 marks) Risk and Return Sample Question Use the following information for below questions. BHP Ltd WOW Ltid S&P/ASX200 Monthly Expected 2.12% 0.89% 0.49% Return Standard Deviation 4.29% Correlation Coefficient with the market a) Assume that you have formed a two-asset portfolio where you have 50% of your wealth invested in BHP Ltd and the rest in WOW Ltd where correlation coefficient between two stocks is 0.18. Calculate the standard deviation of your portfolio. (3 marks) b) Calculate the beta of BHP Ltd and the beta of WOW Ltd. Compare the values and interpret. (5 marks) c) Assuming the market risk premium of 6.5% and the risk-free rate of 4%, compute the required rate of return for BHP Ltd, WOW Ltd and S&P/ASX200. (4 marks) d) Using relevant information in the above table and the answer from c), is BHP Ltd undervalued or overvalued and why? Would you buy or sell

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