Problems on Risk and Return (Based on Excel Exhibit-1 & Exhibit-2)

Refer data given in Exhibit 1 and answer the following questions.

1. What is the difference between beta and standard deviation as a measure of risks?
2. Given that each stock has expected return of 14% and the prevailing annual risk-free rate is
6%, which stock would you like to invest to maximize excess return per unit of risk?
3. Calculate the systematic and unsystematic risk for the stocks.
4. Which stock has the highest percentage of systematic risk?
5. Given that expected annual return on Nifty and its constituent stocks is 14% per annum and
the coefficient of correlation between returns of Asian Paints and Vedanta is -0.5, which of
the following is the best preferred option given that your objective is to maximize Sharpe
ratio? Will you change your decision if the correlation between Asian Paints and Vedanta’s
return is +1 instead of -0.5?
a. Invest in Nifty
b. Invest in Asian Paints
c. Invest in Vedanta
d. Invest 50% in Asian Paints and 50% In Vedanta.
6. Calculate Asian Paints beta, annualized standard deviation based on one year daily stock price
data given in Exhibit-2.