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Please use the information of stock A, stock B, and the market below, and answer the following questions. R A =2%+1.15 R M + e
- Please use the information of stock A, stock B, and the market below, and answer the following questions.
RA=2%+1.15RM+eA
RB=-1.2%+0.85RM+eB
M=7%, eA=8.6%, eB=11%, rf=1.5%, rm=7%
- What is the total risk (standard deviation) of stock A and stock B? What fractions of their total risk are diversifiable?
- What is the correlation between stocks A and B?
- What are the weights for stocks A and B in the optimal risky portfolio with only these two stocks? What is the expected return and risk of the portfolio?
- If the target return is 12% per year, what are the weights of risk-free assets, stock A, and stock B in a complete portfolio?
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Risk Management And Financial Institutions
Authors: John C. Hull
3rd Edition
1118269039, 9781118269039
