Business, 22.02.2020 00:16 mahmudabiazp3ekot

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

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.

1.
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. Omit the "%" sign in your response.)

Standard deviation %

2.
What is the beta of portfolio Q? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Portfolio beta

3.
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.)

Firm-specific

4.
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.)

Covariance

Answers: 3

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