Question

The standard deviation of the market-index portfolio is 30%. Stock A has a beta of 2.00 and a residual standard deviation of 50% a. Calculate the total variance for an increase of 0.20 in its beta. (Do not round Intermediate calculations. Round your answer to the nearest whole number.) Total variance b. Calculate the total variance for an increase of 706% in its residual standard deviation. (Do not round intermediate calculations. Round your answer to the nearest whole number.) Total variance

Answer 1

a) Total Variance = Systemic Variance + Residual Variance = New Beta*(Standard Deviation Market)^2+Residual Variation
=(2.00+0.20)*(30%)^2+50%^2= 44.80%

b)New Standard standard deviation =50%+7.06%=57.06%
Total Variance = Systemic Variance + Residual Variance = Beta*(Standard Deviation Market)^2+Residual Variation
=(2.20)*(30%)^2+57.06%^2= 52.36%