Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Break down the variance of each stock to the systematic and firm-specific components. Stock Stock A Stock B Systematic Variance Firm-specific Variance Total Variance Systematic

Break down the variance of each stock to the systematic and firm-specific components.

Stock

Stock A

Stock B

Systematic Variance

Firm-specific Variance

Total Variance

Systematic Risk % (R2)

R(A)= 3%+.7R(m)+e(A)

R(B)= -2%+1.2R(m)+e(B)

(M)=20%;RSquared(A)=.20;RSquared(B)=.12

Can someone please explain? And are Systematic Risk and Systematic Variance the same? How can I calculate the Total Variance also? I am a little confused and we are not allowed to use excel to solve.. All work needs to be shown unfortunately. From what I understand, to find the Total Variance, you have to add the systematic risk with the Unsystematic. Where is that? Is risk=variance? Always written as a percentage?

Please help....

I am getting the following...

Systematic Var(A)=196;Stematic Var(B)=576

FirmSpecif(A)=784;FirmSpecif(B)=4224

Total Var..... NO CLUE FOR BOTH

SYSTEM RISK%(RSquared) (A)=280; (B)=480

is this correct?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Economics Of Money Banking And Financial Markets

Authors: Frederic Mishkin

5th Edition

0134734203, 978-0134734200

More Books

Students also viewed these Finance questions

Question

What do you mean by dual mode operation?

Answered: 1 week ago

Question

Explain the difference between `==` and `===` in JavaScript.

Answered: 1 week ago

Question

Acceptance of the key role of people in this process of adaptation.

Answered: 1 week ago

Question

preference for well defined job functions;

Answered: 1 week ago