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Consider the market model as follows. Rp= p + bpRM + ep Show R2 as a formula using the above model. B Assume beta of

Consider the market model as follows.

Rp= αp + bpRM + ep

Show R2 as a formula using the above model.

B Assume beta of your portfolio is 0.80, the standard deviation of your portfolio is 22 % and the standard deviation of the market is 17 % . Calculate R2 of your portfolio.

C State the possible range in R2, and compare your calculated R2 in 4 B to the range in R2. Is your portfolio very well diversified? Why?

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