The following are estimates for two stocks. Stock Expected Return Beta Firm-Specific Standard Deviation A 8...

The following are estimates for two stocks. Stock Expected Return Beta Firm-Specific Standard Deviation A 8 % 1.00 28 % B 16 1.60 40 The market index has a standard deviation of 25% and the risk-free rate is 9%.

a. What are the standard deviations of stocks A and B? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. Suppose that we were to construct a portfolio with proportions:

Stock A 0.25 Stock B 0.50 T-bills 0.2

5 Compute the expected return, standard deviation, beta, and nonsystematic standard deviation of the portfolio. (Do not round intermediate calculations. Enter your answer for Beta as a number, not a percent. Round your answers to 2 decimal places.)

Solutions

Expert Solution

Calculation of Standard deviation of Stock A & B

Calculation of Expected retun of Portfolio & Beta of portfolio

Calculation of Variance & Standard deviation

Working Note 1 for Reference to Calculation of Variance

Please feel free to reach or comment back if you need further clarity or something is missing.

ekkarill92 answered 1 year ago

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