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Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA 1.80% +0.75RM + eA RB = -2.00% + 1.10RM + eB OM = 23%; R-squareA = 0.18; R-squareg = 0.10 Assume you create portfolio P with investment proportions of 0.60 in A and 0.40 in B. Required: a. what is the standard deviation of the portfolio? Note: Do not round your intermediate calculations. Round your answer to 2 decimal places. Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. b. What is the beta of your portfolio? Note: Do not round your intermediate calculations. Round your answer to 2 decimal places. Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. c. What is the firm-specific variance of your portfolio? Note: Do not round your intermediate calculations. Round your answer to 3 decimal places. Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. d. What is the covariance between the portfolio and the market index? Note: Do not round your intermediate calculations. Round your answer to 2 decimal places. Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. a. Standard deviation b. Portfolio beta c. Firm-specific d. Covariance 0.89 %

Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA 1.80% +0.75RM + eA RB = -2.00% + 1.10RM + eB OM = 23%; R-squareA = 0.18; R-squareg = 0.10 Assume you create portfolio P with investment proportions of 0.60 in A and 0.40 in B. Required: a. what is the standard deviation of the portfolio? Note: Do not round your intermediate calculations. Round your answer to 2 decimal places. Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. b. What is the beta of your portfolio? Note: Do not round your intermediate calculations. Round your answer to 2 decimal places. Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. c. What is the firm-specific variance of your portfolio? Note: Do not round your intermediate calculations. Round your answer to 3 decimal places. Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. d. What is the covariance between the portfolio and the market index? Note: Do not round your intermediate calculations. Round your answer to 2 decimal places. Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. a. Standard deviation b. Portfolio beta c. Firm-specific d. Covariance 0.89 %

EBK CFIN
EBK CFIN
6th Edition
ISBN:9781337671743
Author:BESLEY
Publisher:BESLEY
Chapter8: Risk And Rates Of Return
Section: Chapter Questions
Problem 9PROB
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Raghubhai 

Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 1.80% +0.75RM + eA RB = -2.00% + 1.10RM + eB OM 23%; R-squareд = 0.18; R-squarep = 0.10 Assume you create portfolio P with investment proportions of 0.60 in A and 0.40 in B. Required: a. What is the standard deviation of the portfolio? Note: Do not round your intermediate calculations. Round your answer to 2 decimal places. Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. b. What is the beta of your portfolio? Note: Do not round your intermediate calculations. Round your answer to 2 decimal places. Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. c. What is the firm-specific variance of your portfolio? Note: Do not round your intermediate calculations. Round your answer to 3 decimal places. Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. d. What is the covariance between the portfolio and the market index? Note: Do not round your intermediate calculations. Round your answer to 2 decimal places. Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. a. Standard deviation b. Portfolio beta c. Firm-specific d. Covariance 0.89 %
Transcribed Image Text:Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 1.80% +0.75RM + eA RB = -2.00% + 1.10RM + eB OM 23%; R-squareд = 0.18; R-squarep = 0.10 Assume you create portfolio P with investment proportions of 0.60 in A and 0.40 in B. Required: a. What is the standard deviation of the portfolio? Note: Do not round your intermediate calculations. Round your answer to 2 decimal places. Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. b. What is the beta of your portfolio? Note: Do not round your intermediate calculations. Round your answer to 2 decimal places. Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. c. What is the firm-specific variance of your portfolio? Note: Do not round your intermediate calculations. Round your answer to 3 decimal places. Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. d. What is the covariance between the portfolio and the market index? Note: Do not round your intermediate calculations. Round your answer to 2 decimal places. Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. a. Standard deviation b. Portfolio beta c. Firm-specific d. Covariance 0.89 %
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