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The following are estimates for two stocks. Stock Expected Return Beta Firm-Specific Standard Deviation A 11...

The following are estimates for two stocks.

Stock Expected Return Beta Firm-Specific Standard Deviation
A 11 % 0.90 32 %
B 16 1.40 40

The market index has a standard deviation of 19% and the risk-free rate is 11%.

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 0.40
Stock B 0.40
T-bills 0.20

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

Calculate the SD and expected return and beta as follows:

Formulas:

jeff jeffy answered 1 year ago
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