Question
Answer the following problem (set number 13) from the end of Chapter 9. The following table shows estimates of the risk of two well-known Canadian
Answer the following problem (set number 13) from the end of Chapter 9. The following table shows estimates of the risk of two well-known Canadian Stocks: Standard Deviation, % R2 Beta Standard Error of Beta Toronto Dominion Bank 25 .66 1.26 .09 Research in Motion 44 .08 .82 .25 a. What proportion of each stock's risk was market risk, and what proportion was specific risk? b. What is the variance of Toronto Dominion? What is the specific variance? c. What is the confidence interval on Research in Motion's beta? d. If the CAPM is correct, what is the expected return on Toronto Dominion? Assume a risk-free interest rate of 5% and an expected market return of 12%.
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