Question
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: R A = 2.80% + 1.00
Suppose that the index model for stocks A and B is estimated from excess returns with the following results:
RA = 2.80% + 1.00RM + eA
RB = -1.00% + 1.30RM + eB
M = 18%; R-squareA = 0.27; R-squareB = 0.13
Assume you create portfolio P with investment proportions of 0.70 in A and 0.30 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.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started