Question
Consider the two (excess return) index model regression results for A and B : R A = 1.1% + 0.95 R M R -square =
Consider the two (excess return) index model regression results for A and B:
RA = 1.1% + 0.95RM
R-square = 0.488
Residual standard deviation = 9.2%
RB = 0.4% + 1.4RM
R-square = 0.576
Residual standard deviation = 12.5%
1) If rf were constant at 8% and the regression had been run using total rather than excess returns, what would have been the regression intercept for stock A? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal place.)
Intercept _____%
Question 2:
Suppose that the index model for stocks A and B is estimated from excess returns with the following results:
RA = 2.8% + 1.00RM + eA
RB = 1% + 1.3RM + eB
M = 18%; R-squareA = 0.27; R-squareB = 0.13
Assume you create portfolio P with investment proportions of 0.70 in A and 0.30 in B.
1. What is the standard deviation of the portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.)
Help in 3& 4
Standard deviation 33.82 Numeric Response1. Edit Unavailable.33.82correct.%
2. What is the beta of your portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.)
Portfolio beta 1.09 Numeric Response2. Edit Unavailable.1.09correct.
3. What is the firm-specific variance of your portfolio? (Do not round your intermediate calculations. Round your answer to 4 decimal places.)
Firm-specific _______.
4. What is the covariance between the portfolio and the market index? (Do not round your intermediate calculations. Round your answer to 3 decimal places.)
Covariance _____
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