Question
In: Finance
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% + 1.10RM +
eB
σM = 23%;
R-squareA = 0.18;
R-squareB = 0.10
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. What is the standard deviation of portfolio
Q? (Calculate using numbers in decimal form, not
percentages. Do not round intermediate
calculations. Round your answer to 2 decimal places.)
b. What is the beta of portfolio Q?
(Do not round intermediate calculations.
Round your answer to 2 decimal places.)
c. What is the "firm-specific" risk of portfolio
Q? (Calculate using numbers in decimal form, not
percentages. Do not round intermediate
calculations. Round your answer to 4 decimal
places.)
d. What is the covariance between the portfolio
and the market index? (Calculate using numbers in decimal
form, not percentages. Do not round intermediate
calculations. Round your answer to 2 decimal
places.)
PLEASE SHOW ALL WORK. THIS IS ONE PROBLEM WITH FOUR PARTS.
Solutions
Expert Solution
SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE
jeff jeffy answered 1 year agoRelated Solutions
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.)
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 = 3.5% + 0.65RM +
eA
RB = –1.6% + 0.80RM +
eB
σM = 21%;
R-squareA = 0.22;
R-squareB = 0.14
What are the covariance and correlation coefficient between the
two stocks? (Do not round intermediate calculations.
Calculate using numbers in decimal form, not percentages. Round
your answers to 4 decimal places.)
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- The Following table is based on a time study for a metal working operation Obs (minutes...
- Write a method that returns the percentage of the number of elements that have the value true...
- Jane is the financial manager for Alpha Corporation. She has been asked to perform a lease-versus-purchase...
- 7. Choose the bond that is least polar (how would you do this without looking at...
- SCHEME [4 marks] Define a procedure called valid_date? that takes three arguments representing the year, month,...
- Suppose a company is looking to hedge a risk in the derivatives market. What, fundamentally, is...
- Training and Development assignment. Describe the usage of Computer Based Training (CBT) in McDonald's Company training...
ADVERTISEMENT