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Question 1 (Total 15 marks) Use the following information to answer a) Expected Return Standard Deviabon Weight Correction Coefficient Moon Ltd 7% 7.38% 70% Star Ltd 2.4% 3.21% 30% 0.46 Required a) Assume that you have formed a two-asset portfolio equally invested in Moon Ltd and Star Ltd 0 How would you measure total risk of your portfolio? Calculate (3 marks ID By forming a two-asset portfolio, were you able to achieve diversification benefit to some extent? Justify your answer. (2 marks by Assume that you have formed a four asset portfolio equally invested in Moon Ltd, Star Ltd and 10 year Australian government bonds and the market Index, S&P/ASX 300. Moon Ltd's beta is 09 and Star Lid's beto is 1.1, Calculate the beta of your portfolio (4 marks) c) c) At the beginning of 2014, Star Lid's beta was 11 and the risk-free rate was about 3% Star Ltd's price was 38.27. At the end of 2014, Star Ltd's price was $8.85 and a dividend of 20 cents was paid. You estimate the marking nisk premium to have been 8,5% (2 marks) Compute the required rate of return for Star Ltd 1) Compute the realised return for Star Lid (2 marks) il) Was Star Ltd. overpriced or underpriced and why? (1 mark) [1 mark Based on your answer above, make a 'buy or ser recommendation for Star Ltd