Question
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: R A = 1.6% + 0.70
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: |
RA = 1.6% + 0.70RM + eA | |
RB = 1.8% + 0.9RM + eB | |
M = 22%; R-squareA = 0.20; R-squareB = 0.15 |
Assume you create portfolio P with investment proportions of 0.70 in A and 0.30 in B. |
1. | What is the standard deviation of the portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places. Omit the "%" sign in your response.) |
Standard deviation | % |
2. | What is the beta of your portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.) |
Portfolio beta |
3. | What is the firm-specific variance of your portfolio? (Do not round your intermediate calculations.Round your answer to 4 decimal places.) |
Firm-specific |
4. | What is the covariance between the portfolio and the market index? (Do not round your intermediate calculations. Round your answer to 3 decimal places.) |
Covariance |
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