Calculate the expected return and standard deviation

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Your grandfather is planning to invest $25,000 into the following stocks: Rio Tinto Ltd Cathay Pacific Airlines

a) Collect the year-end (adjusted closing) stock prices for Rio Tinto Ltd and Cathay Pacific Airlines from the period 2010-2015. For each stock, show the annual stock returns. (Hint: students may collect stock prices from Yahoo Finance).

b) Based on the annual stock returns, calculate the average stock returns and standard deviation for each stock.

c) Calculate the covariance and correlation of annual stock returns between these stocks. Explain your answers.

d) Find the 30 days BAB (bank Accepted Bill) rate (risk-free rate) as at June 2015. (Hint: students may collect the risk-free rate from the Reserve Bank of Australia). Calculate the Sharpe ratio for Rio Tinto Ltd and Cathay Pacific Airlines. Which stock is performing better? Explain your answer.

e) Suppose grandfather invests 60% in Rio Tinto and 40% in Cathay Pacific Airlines, calculate the expected return and standard deviation for this portfolio. Is this portfolio perform better than the individual stock?

Reference no: EM133069738

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