Being a conservative investor, you are able to obtain

Being a conservative investor, you are able to obtain returns data for two stocks of interest for the years 2015 through to 2021. The data is summarised below:

Create a table similar to the table above to answer the following:

a. Calculate standard deviation of the holding period return for all stocks. 6 marks.

b. Calculate annual holding period returns for the two stocks. 4 marks.

c. Plot the data from the table above on a graph that has risk (x-axis) and return (y-axis) . 5 marks.

d. Calculate the covariance between AEL and BDL. 5 marks.

e. Calculate the correlation coefficients between AEL and BDL. What can you conclude? 4 marks.

f. If you construct a portfolio where 40% of funds are invested in AEL and the rest in BDL what would be the expected return and standard deviation of this two-asset portfolio? 6 marks

g. If the relevant government bond rate in 2021 was 1.3%, beta of AEL is 1.2 while BDL has a beta of 0.7, calculate the expected return of stocks AEL and BDL according to the CAPM assuming the market return of 8%. 5 marks.

h. Comparing your answers from part b.) and part g.) identify and explain if the stocks were fairly priced or not in 2021. (maximum 100 words) 5 marks.