Question: QUESTION 3 Total 13 marks The following are the estimates for the Stock ABC and XYZ Stocks Expected return (%) Beta Firm-specific standard deviation (%)

QUESTION 3 Total 13 marks The following are the estimates for

QUESTION 3 Total 13 marks The following are the estimates for the Stock ABC and XYZ Stocks Expected return (%) Beta Firm-specific standard deviation (%) ABC 10 0.7 25 XYZ 15 1.3 35 The market index has a standard deviation of 20% and the Treasury bill rate of return is 7%. Required: a) What are the standard deviation of stock ABC and stock XYZ respectively? (4 marks) b) If a portfolio consists of investment 30% in ABC, 45% in XYZ and 25% in Treasury Bill, what are the expected return and standard deviation of this portfolio? (6 marks) c) What are the proportion of systematic risk to total risk of this portfolio, and the correlation coefficient between the portfolio return and market return

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