Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA 4.50% +1.40RM + A

image text in transcribed

Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA 4.50% +1.40RM + A RB = -2.20% +1.70RM + eB = OM 24%; R-square 0.30; R-squareg = 0.20 Assume you create a portfolio Q, with investment proportions of 0.50 in a risky portfolio P, 0.30 in the market index, and 0.20 in T-bill. Portfolio Pis composed of 60% Stock A and 40% Stock B. Required: a. What is the standard deviation of portfolio Q? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 2 decimal places. b. What is the beta of portfolio Q? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 2 decimal places. c. What is the "firm-specific" risk of portfolio Q? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 4 decimal places. d. What is the covariance between the portfolio and the market index? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 2 decimal places. a. Standard deviation b. Portfolio beta c. Firm-specific d. Covariance %

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management Core Concepts

Authors: Raymond M Brooks

2nd edition

132671034, 978-0132671033

More Books

Students also viewed these Finance questions

Question

Give codons for the following amino acids: (a) Th (b) Asp (c) Thr

Answered: 1 week ago