Question
6. Calculating a beta coefficient for a single stock Suppose that the standard deviation of returns for a single stock A is A = 40%,
6. Calculating a beta coefficient for a single stock Suppose that the standard deviation of returns for a single stock A is A = 40%, and the standard deviation of the market return is M = 20%. If the correlation between stock A and the market is AM = 0.7, then the stocks beta is .
Is it reasonable to expect that the future expected return for a stock will equal its historical average return over a relatively short period of time? No Yes
Next, consider a two-asset portfolio consisting of stock A with wA = 80% and an expected return rA = 15% and a standard deviation of A = 11%, and stock B with rB = 7% and B = 8%.
Assuming that the correlation between stocks A and B is AB = 0.15, the expected return to the portfolio is , and the portfolios standard deviation is _____.
Suppose that the correlation between stocks A and B is AB = 1, instead of AB = 0.15. Which of the following statements correctly reflects the new data?
The expected return to the portfolio is lower.
The risk associated with the portfolio is higher.
The risk associated with the portfolio is lower.
The expected return to the portfolio is higher
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