Question
Question 5 B An assets reward-to-risk ratio is defined as its risk premium divided by its standard deviation. It is a useful statistic to summarize
Question 5 B
An assets reward-to-risk ratio is defined as its risk premium divided by its standard deviation. It is a useful statistic to summarize the assets risk-return trade-off. Consider the following information:
Stock A has a reward-to-risk ratio of 0.4 and stock B has a reward-to-risk ratio of 0.33. Stock As risk premium is 8%, stock Bs risk premium is 10% and the market risk premium is 7%. The correlation between stocks A and B is 0.6. Assume the CAPM holds.
A portfolio consisting of stocks A and B has 20% more systematic risk than the market.
Calculate the total risk of this portfolio.
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Fixed Income Securities Tools For Todays Markets
Authors: Bruce Tuckman, Angel Serrat
4th Edition
1119835550, 978-1119835554
