Rose is a junior financial manager analyzing Health Care stock HY Inc. She used monthly excess

returns of HY Inc. in a single index model as follows: rHY $=0\mathrm{.}005+0\mathrm{.}73$rM $+$ uHY

where u is the error term. The standard deviation of HY equals $0\mathrm{.}30.$ Also, the coefficient of

determination is $0\mathrm{.}92$ and the monthly risk$-$free rate is $0\mathrm{.}005.$

$1.$ Calculate the systematic variance and systematic standard deviation of HY$.$ Interpret your

answer. $(3$ marks$)$

$2.$ Calculate the variance and standard deviation of the market. Interpret your answer. $(3$ marks$)$

$3.$ Calculate the residual standard deviation of HY$.$ Interpret your answer. $(4$ marks$)$

$4.$ Calculate and interpret the abnormal return of HY and show$/$discuss the detail of the investment

implications$/$strategy$?(6$ marks$)$

$5.$ Consider stock Q$,$ which has a correlation of $35\%$ with HY$,$ has a beta equal to $0\mathrm{.}65,$ and an

expected return of $16\%.$ Find the residual variance of stock Q$.$ Interpret. $(4$ marksRose is a junior financial manager analyzing Health Care stock HY Inc. She used monthly excess

returns of HY Inc. in a single index model as follows: rHY $=0\mathrm{.}005+0\mathrm{.}73$rM $+$ uHY

where u is the error term. The standard deviation of HY equals $0\mathrm{.}30.$ Also, the coefficient of

determination is $0\mathrm{.}92$ and the monthly risk$-$free rate is $0\mathrm{.}005.$

$1.$ Calculate the systematic variance and systematic standard deviation of HY$.$ Interpret your

answer. $(3$ marks$)$

$2.$ Calculate the variance and standard deviation of the market. Interpret your answer. $(3$ marks$)$

$3.$ Calculate the residual standard deviation of HY$.$ Interpret your answer. $(4$ marks$)$

$4.$ Calculate and interpret the abnormal return of HY and show$/$discuss the detail of the investment

implications$/$strategy$?(6$ marks$)$

$5.$ Consider stock Q$,$ which has a correlation of $35\%$ with HY$,$ has a beta equal to $0\mathrm{.}65,$ and an

expected return of $16\%.$ Find the residual variance of stock Q$.$ Interpret. $(4$ marks