Question
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: R A = 3% + 0.7
Suppose that the index model for stocks A and B is estimated from excess returns with the following results:
RA = 3% + 0.7RM + eA
RB = 2% + 1.2RM + eB
M = 20%; R-squareA = 0.20; R-squareB = 0.12
Assume you create portfolio P with investment proportions of 0.60 in A and 0.40 in B.
a. What is the standard deviation of the portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.)
b. What is the beta of your portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.)
c. What is the firm-specific variance of your portfolio? (Do not round your intermediate calculations. Round your answer to 4 decimal places.)
d. What is the covariance between the portfolio and the market index? (Do not round your intermediate calculations. Round your answer to 3 decimal places.)
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Management and Cost Accounting
Authors: Colin Drury
8th edition
978-1408041802, 1408041804, 978-1408048566, 1408048566, 978-1408093887
