Question

In: Finance

The index model has been estimated for the returns of stocks A and B, denoted by...

The index model has been estimated for the returns of stocks A and B, denoted by R_A and R_B, on the return on the market denoted by R_M, with the following results:
R_A = 0.01 + 0.8R_M + e_A.
R_B = 0.02 + 1.2R_M + e_B.
The standard deviation of market returns is 0.2; the idiosyncratic risk (standard deviation of e_A) of stock A is 0.10; and that for stock B is 0.20.
The standard deviation for stock A is

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

As nothing is mentioned, answers are rounded in decimals, till 4 places, as well as in %, rounded to 2 decimals

As it look like we need both standard deviation for A and B, i have provided both

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Suppose that the Index Model for the excess returns of stocks A and B is estimated...
Suppose that the Index Model for the excess returns of stocks A and B is estimated with the following results: RA = 0.01 + 0.80 * Rm + eA RB = -0.02 + 1.5 * Rm + eB Stdev(Rm)=0.25 Stdev(eA)=0.40 Stdev(eB)=0.20 What is the Standard Deviation of each Stock. What is the Covariance between Stock A and Stock B. What is the Correlation between Stock A and Stock B
Suppose that the index model for stocks A and B is estimated from excess returns with...
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 5.0% + 1.30RM + eA RB = –2.0% + 1.6RM + eB σM = 20%; R-squareA = 0.20; R-squareB = 0.12 Break down the variance of each stock to the systematic and firm-specific components. (Do not round intermediate calculations. Calculate using numbers in decimal form, not percentages. Round your answers to 4 decimal places.)
Suppose that the index model for stocks A and B is estimated from excess returns with...
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 2.6% + 0.90RM + eA RB = –2.0% + 1.20RM + eB σM = 26%; R-squareA = 0.21; R-squareB = 0.12 Assume you create a portfolio Q, with investment proportions of 0.40 in a risky portfolio P, 0.35 in the market index, and 0.25 in T-bill. Portfolio P is composed of 70% Stock A and 30% Stock B. a....
Suppose that the index model for stocks A and B is estimated from excess returns with...
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 1.60% + 0.70RM + eA RB = -1.80% + 0.90RM + eB σM = 22%; R-squareA = 0.20; R-squareB = 0.15 Assume you create portfolio P with investment proportions of 0.70 in A and 0.30 in B. a. What is the standard deviation of the portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.)...
Suppose that the index model for stocks A and B is estimated from excess returns with...
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 3.60% + 1.20RM + eA RB = -1.60% + 1.50RM + eB σM = 16%; R-squareA = 0.25; R-squareB = 0.15 Assume you create portfolio P with investment proportions of 0.70 in A and 0.30 in B. a. What is the standard deviation of the portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.)...
Suppose that the index model for stocks A and B is estimated from excess returns with...
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 2.20% + 0.80RM + eA RB = -2.20% + 1.20RM + eB σM = 24%; R-squareA = 0.16; R-squareB = 0.12 Assume you create portfolio P with investment proportions of 0.70 in A and 0.30 in B. a. What is the standard deviation of the portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.)...
Suppose that the index model for stocks A and B is estimated from excess returns with...
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 2.50% + 0.95RM + eA RB = -1.80% + 1.10RM + eB σM = 27%; R-squareA = 0.23; R-squareB = 0.11 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.)...
Suppose that the index model for stocks A and B is estimated from excess returns with...
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 5.00% + 1.30RM + eA RB = -2.00% + 1.60RM + eB σM = 20%; R-squareA = 0.20; R-squareB = 0.12 Assume you create portfolio P with investment proportions of 0.70 in A and 0.30 in B. a. What is the standard deviation of the portfolio? b. What is the beta of your portfolio?
Suppose that the index model for stocks A and B is estimated from excess returns with...
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 2.4% + 0.85RM + eA RB = –2.4% + 1.30RM + eB σM = 25%; R-squareA = 0.17; R-squareB = 0.11 Assume you create a portfolio Q, with investment proportions of 0.50 in a risky portfolio P, 0.30 in the market index, and 0.20 in T-bill. Portfolio P is composed of 60% Stock A and 40% Stock B. a....
Suppose that the index model for stocks A and B is estimated from excess returns with...
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 1.8% + 0.75RM + eA RB = -2.0% + 1.1RM + eB σM = 23%; R-squareA = 0.18; R-squareB = 0.10 What is the covariance between each stock and the market index? (Calculate using numbers in decimal form, not percentages. Do not round your intermediate calculations. Round your answers to 3 decimal places.)
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT