Question

6. Calculating a beta coefficient for a single stock Aa Aa E Suppose that the standard deviation of returns for a single stock A is A = 40%, and the standard deviation of the market return is OM = 20%. If the correlation between stock A and the market is PAM = 0.7, then the stock's beta is Is it reasonable to expect that the future expected return for a stock will equal its historical average return over a relatively short period of time? Yes Ο Νο Next, consider a two-asset portfolio consisting of stock A with WA = 10% and an expected return ra = 8% and a standard deviation of OA = 10%, and stock B with rs = 11% and og = 4%. Assuming that the correlation between stocks A and B is PAB = 0.75, the expected return to the portfolio is , and the portfolio's standard deviation is Suppose that the correlation between stocks A and B is PAB = -1, instead of PAB = 0.75. Which of the following statements correctly reflects the new data? O O The risk associated with the portfolio is higher. The expected return to the portfolio is lower. The risk associated with the portfolio is lower. The expected return to the portfolio is higher.

Answer 1

Answer-

Given JA=40% m=20% correlation - PAM = 0.7 Beta = correlation (Pm) x TA Beta = Beta - Beta - 0.7 x 40% 20% 0.7x 2% 1.4

Note- Kindly put other questions in separate posts