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The excess returns of Harvey Norman (ASX: HVN) and JB HI-FI (ASX: JBH) are used to estimate the following single index models: RHVN-0.02+0.7RM+eHVN RHVN=0.15 RJBF

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The excess returns of Harvey Norman (ASX: HVN) and JB HI-FI (ASX: JBH) are used to estimate the following single index models: RHVN-0.02+0.7RM+eHVN RHVN=0.15 RJBF -0.035+1.1RM+eJBF R2JBF 0.11 a) Calculate the beta of a portfolio that is equally invested into HVN, JBF and the market index. [1 mark] b) Calculate the total risk of each stock if the return of the market index over the same period is 9% and the risk (standard deviation) of the market is 30%. [2 marks] c) Calculate the systematic and firm-specific components of risk for both stocks. [4 marks] d) Calculate the beta and risk (standard deviation) of a portfolio that has a composition of 40% invested into HVN and the reminder into JBF. [3 marks]

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