Question
In: Finance
Problem 8-13 Suppose that the index model for stocks A and B is estimated from excess...
Problem 8-13
Suppose that the index model for stocks A and B is estimated from excess returns with the following results:
RA = 3.80% + 1.25RM + eA
RB = -1.80% + 1.60RM + eB
σM = 18%; R-squareA = 0.24; R-squareB = 0.18
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.)
b. What is the beta of your portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.)
c. What is the firm-specific variance of your portfolio? (Do not round your intermediate calculations. Round your answer to 4 decimal places.)
d. What is the covariance between the portfolio and the market index? (Do not round your intermediate calculations. Round your answer to 3 decimal places.)
Solutions
Expert Solution
SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE
IT IS NOT MENTIONED THAT
STANDARD DEVIATION OF PORTFOLIO P SHOULD BE IN % OR DECIMAL TERMS.
I HAVE SPECIFIED IN BOTH THE TERMS
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.)
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