1. You've estimated or collected the following information:

Asset	Standard deviation	Expected return
S&P 500	0.21	0.08
T-bills	0	0.02

You've also done some security analysis and came up with the following estimates:

Stock	Beta	Residual standard deviation	Expected return
Apple	0.9	0.81	0.1
Exxon	0.8	0.54	0.09
Ford	1.4	0.62	0.15

Part 1

Calculate the alpha values for the three stocks. What is the alpha value for Ford?

Part 2

What is the weight for Ford (such that the weights of all stocks add to 1)?

2. Consider the two index model regression results for stocks A and B estimated from excess returns with the following results: R_A = 4% + 0.7R_M + e_A R_B = -3% + 1.2R_M + e_{B M} = 18% R2ARA2 = 0.33 R2BRB2 = 0.62

Part 1

What is the standard deviation of stock B?

Part 2

What proportion of the total risk of stock A is due to systematic risk?

Please answer both questions: