2 j Suppose there are three risky assets (indexed by j = 1,2,3) with the...
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2 € j Suppose there are three risky assets (indexed by j = 1,2,3) with the following ß; and σ²; when regressed on the market porfolio. j Bj σε Ej 1 1.20 0.09 2 1.00 0.06 3 0.80 0.04 Assume that the pairwise correlations among ε;'s are all equal to 0.25. The variance of the return on market portfolio is σ = 0.04. Note: here we define risk as the variance. M (a) (5pts) What proportion of the total risk of stock 2 is due to market? 0 and w3 = (b) (5pts) Consider a portfolio with weights wi 0.5, W2 = assets. What is the beta of this portfolio? 0.5 on these three (c) (5pts) What proportion of the total risk of the portfolio in (b) is due to market? 2 € j Suppose there are three risky assets (indexed by j = 1,2,3) with the following ß; and σ²; when regressed on the market porfolio. j Bj σε Ej 1 1.20 0.09 2 1.00 0.06 3 0.80 0.04 Assume that the pairwise correlations among ε;'s are all equal to 0.25. The variance of the return on market portfolio is σ = 0.04. Note: here we define risk as the variance. M (a) (5pts) What proportion of the total risk of stock 2 is due to market? 0 and w3 = (b) (5pts) Consider a portfolio with weights wi 0.5, W2 = assets. What is the beta of this portfolio? 0.5 on these three (c) (5pts) What proportion of the total risk of the portfolio in (b) is due to market?
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Risk Due to Market and Portfolio Beta We can analyze the risk of stock 2 and the portfolio using the ... View the full answer
Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
Posted Date:
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