Question

The following are estimates for two stocks. Firm-Specific Standard Deviation Expected Return 12% 18 Stock Beta 0.85 1.40 The market index has a standard deviation of 22% 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.) StockA Stock B b. Suppose that we were to construct a portfolio with proportions: Stock B 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) Expected return Standard deviation Beta Nonsystematic standard deviation

Answer 1

Answer Page No 0 @ Standard deviation of electa A a slock B standand deviation of sfoch A = ecuta(marthat standard deviations) + (firm-specific so)"]" - [Co*** (1293) + (884,3)" = (0.034969 + 0.1084)7 = (0.134369) = 0.3766 = 37.06 % - standard deviation of stock A = 37.06% standard deviation of stoch B [(1.40°x (27)") + (488.34] - [0094864 +0. 23043 - Co: 325264) = 0.5403: = 54.034 To: standard deviation of stock B = 57.03.7.

Page: No @ Given , Expected firm-specific Beta stock weight return Standard deviation 0.85 32% 12%, 187. 35% 40% 1.40 487. T-billo 11 25%. Portfolio expected return = ( 35%.X124) + (40%. x is '/) + (25 %x114.) . = 0.042 + 0.042 + 0.0275 = 0.1415 14.15 % 1 .: Porfolio expected return = 14.154. Beta of the portfolio = (354.80.85) + (40 % X 1.40) + .. (as%xo) 3 0.22975 +0.56 + 0 = 0.8575 0.86

Page No ③ 1 :. Beba of the Portfolio = 0.86 Non systemat'c rofandard deviation of portfolio [007) x (579] + [fee? () - (257) = (0.012544) + (0.036864) +0 0.049408 0.222279 = 22.2279% 22.23%. .:Non systematic standard deviation of Portfolio – 20.23% Standard deviation of Patfolio - Cosox )) + (12,2373 V0.03579664 +0.049917.09. = 0.2919. – 29.19% of Portfolio 3 29.1981 The Standard deviation