Suppose that the index model for stocks A and B is estimated from excess returns with the following results: R A = 4.50% + 1.40
Suppose that the index model for stocks A and B is estimated from excess returns with the following results:
RA = 4.50% + 1.40RM + eA
RB = -2.20% + 1.70RM + eB
M = 24%; R-squareA = 0.30; R-squareB = 0.20
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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Authors: Marsh, Lee Shaiman, Bridget Marsh
2nd Edition
1264258526, 978-1264258529
