Question
Hi there. I need helps answering this question. Thank you. Suppose that the index model for stocks A and B is estimated from excess returns
Hi there. I need helps answering this question. Thank you.
| Suppose that the index model for stocks A and B is estimated from excess returns with the following results: |
| RA = 3.5% + 0.65RM + eA | |
| RB = 1.6% + 0.8RM + eB | |
| M = 21%; R-squareA = 0.22; R-squareB = 0.14 |
| Assume you create portfolio P with investment proportions of 0.60 in A and 0.40 in B. |
| 1. | What is the standard deviation of the portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places. Omit the "%" sign in your response.) |
| Standard deviation | % |
| 2. | What is the beta of your portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.) |
| Portfolio beta |
| 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 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Advanced Accounting
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik
10th edition
0-07-794127-6, 978-0-07-79412, 978-0077431808
