## BEO3000 Assignment task on Risk Management Model

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Assignment Details:-

• Course Code: BEO3000
• Course Title: Risk Management Models
• Referencing Styles: Harvard
• Words: 1500
• University: Victoria University
• Country: MY

### Assignment:-

You are required to complete all tasks of this assignment manually without using Excel. You may use calculators, but you are required to show detailed workings and show all the steps to arrive at the final solution.

Q1. To construct a portfolio of stocks there are at least two questions that you need to ask:

1) What stocks should I choose?

2) How should I allocate my funds among these stocks?

You are required to do research to provide comments.

Q2. Suppose that the current cash dividend on Stars Ltd’s ordinary shares is \$0.27. Financial analysts expect the dividends to grow at a constant rate of 6% per year, and investors require a 12% return on this class of shares. What should be the current share price of Stars Ltd? In your own words, describe how the general dividend valuation model values a share.

Q3. A bank’s current share price is \$60, and it will be worth either \$70or 40in three months. The risk-free rate of interest is 5%(continuously compounded). What is the value of the call option with an exercise of \$60? Find the hedge ratio for this share and explain its meaning.

Q4. HDALtd is in the mining sector, while Smart Ltd is in the consumer staples sector. Calculate the covariance of monthly returns on HADLtd and Smart Ltd for the first four months of 2019:

(a)Calculate the mean return on HADLtd and Smart Ltd

(b)Calculate the covariance. Explain the covariance of returns between HADLtd and Smart Ltd.