Question
Problem 6-5 The standard deviation of the market index portfolio is 30%. Stock A has a beta of 1.8 and a residual standard deviation of
Problem 6-5 The standard deviation of the market index portfolio is 30%. Stock A has a beta of 1.8 and a residual standard deviation of 45%. Requirement 1: (a) Calculate the total variance for an increase of .25 in its beta? (Round your answer to 4 decimal places.) Total variance (b) Calculate the total variance for an increase of 3% in its residual standard deviation? (Round your answer to 4 decimal places.) Total variance Requirement 2: An investor who currently holds the market-index portfolio decides to reduce the portfolio allocation to the market index to 90%, and to invest 10% in stock A. Which of the changes will have a greater impact on the portfolio's standard deviation?
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