Assignment
Assume you have invested in two shares Woolworth (WOW) and Village Roadshow (VRL). Woolworth is a leading retail company in Australia and Village Roadshow is an Australian film producer and distributer. Consider the following information associated with the two shares:
|
Probability of return
|
WOW Rate of return
|
VRL Rate of return
|
|
0.30
|
0.02
|
- 0.20
|
|
0.40
|
0.32
|
0.12
|
|
0.30
|
0.18
|
0.40
|
The market risk premium is 12%, and the risk-free rate is 4%.
Required:
1) Calculate and explain which share has the most systematic risk?
2) Calculate and explain which share has the most total risk?
3) Discuss which share is actually the 'riskier' share based on the concept of diversification.
4) Discuss the importance of CAPM and SML in determining the trade-off between risk and return.
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.