Suppose that the index model for stocks A and B is
estimated from excess returns with the following results:
RA = 2.5% + 0.95RM + eA
RB = –1.8% + 1.10RM + eB
σM = 27%; R-squareA = 0.23; 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. What is the standard deviation of portfolio
Q?
b. What is the beta of portfolio Q?
c. What is the "firm-specific" risk of portfolio Q?
d. What is the covariance between the portfolio and the market
index?
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....
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 3.00% + 1.05RM + eA RB = -1.20% + 1.20RM + eB σM = 29%; R-squareA = 0.29; R-squareB = 0.14 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.)...
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