Seashells Ltd, a publicly listed Micronesia company.
Seashells Ltd. does not currently pay any dividends.
Year Price
2009 $28.50
2010 $36.82
2011 $41.35
2012 $35.02
2013 $34.17
2014 $27.34
2015 $15.35
2016 $26.64
Required
1. Calculate the expected return and standard deviation of Seashells Ltd.
2. Micronesia Treasury bills currently pay a return of 2%; the Micronesia stock market return over the same period averaged 8.5%, and Seashells Ltd. beta is estimated at 1.1. Identify whether it is a good idea to buy Seashells Ltd. Explain your reasoning for including or excluding Seashells into / from the managed fund?
3. Show, graphically, the return of Seashells Ltd relative to its risk (measured by Beta). What does the graph show in comparison to the security market line (SML)?