Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The following are estimates for two stocks. Stock Expected Return Beta Firm-Specific Standard Deviation A 12% 0.80 30% B 21 1.35 46 The market index
| The following are estimates for two stocks. |
| Stock | Expected Return | Beta | Firm-Specific Standard Deviation | ||||
| A | 12% | 0.80 | 30% | ||||
| B | 21 | 1.35 | 46 | ||||
| The market index has a standard deviation of 20% and the risk-free rate is 11%. |
| a. | What are the standard deviations of stocks A and B? (Do not round intermediate calculations. Enter your responses as decimal numbers rounded to 2 decimal places). |
| Stock A | |
| Stock B | |
| b. | Suppose that we were to construct a portfolio with proportions: |
| Stock A | 0.30 |
| Stock B | 0.45 |
| T-bills | 0.25 |
| Compute the expected return, standard deviation, beta, and nonsystematic standard deviation of the portfolio. (Do not round intermediate calculations. Enter your answer for Beta in numbers, not in percentage. Round your answers to 2 decimal places. Omit the "%" sign in your response.) |
| Standard Deviation | |
| Expected return | % |
| Standard deviation | % |
| Beta | |
| Nonsystematic standard deviation | % |
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