Homework Help is Here – Start Your Trial Now!
Business
Finance
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 3.50 % + 0.65RM + еA RB = -1.60% +0.80RM + еB = OM 21%; R-squareA 0.22; R-squareg = 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 Pis composed of 60% Stock A and 40% Stock B. Required: a. What is the standard deviation of portfolio Q? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 2 decimal places. b. What is the beta of portfolio Q? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 2 decimal places. c. What is the "firm-specific" risk of portfolio Q? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 4 decimal places. d. What is the covariance between the portfolio and the market index? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 2 decimal places. Answer is complete but not entirely correct. a. Standard deviation b. Portfolio beta c. Firm-specific d. Covariance 16.46% 0.66 0.8184 × 288.86

Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 3.50 % + 0.65RM + еA RB = -1.60% +0.80RM + еB = OM 21%; R-squareA 0.22; R-squareg = 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 Pis composed of 60% Stock A and 40% Stock B. Required: a. What is the standard deviation of portfolio Q? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 2 decimal places. b. What is the beta of portfolio Q? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 2 decimal places. c. What is the "firm-specific" risk of portfolio Q? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 4 decimal places. d. What is the covariance between the portfolio and the market index? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 2 decimal places. Answer is complete but not entirely correct. a. Standard deviation b. Portfolio beta c. Firm-specific d. Covariance 16.46% 0.66 0.8184 × 288.86

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 6P
See similar textbooks
icon
Related questions
Question
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 3.50% + 0.65RM + еA RB ом = -1.60% +0.80RM + eB = = 21%; R-squareд 0.22; R-squareg = 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. Required: a. What is the standard deviation of portfolio Q? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 2 decimal places. b. What is the beta of portfolio Q? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 2 decimal places. c. What is the "firm-specific" risk of portfolio Q? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 4 decimal places. d. What is the covariance between the portfolio and the market index? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 2 decimal places. Answer is complete but not entirely correct. a. Standard deviation b. Portfolio beta c. Firm-specific d. Covariance 16.46% 0.66 0.8184x 288.86
Transcribed Image Text:Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 3.50% + 0.65RM + еA RB ом = -1.60% +0.80RM + eB = = 21%; R-squareд 0.22; R-squareg = 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. Required: a. What is the standard deviation of portfolio Q? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 2 decimal places. b. What is the beta of portfolio Q? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 2 decimal places. c. What is the "firm-specific" risk of portfolio Q? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 4 decimal places. d. What is the covariance between the portfolio and the market index? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 2 decimal places. Answer is complete but not entirely correct. a. Standard deviation b. Portfolio beta c. Firm-specific d. Covariance 16.46% 0.66 0.8184x 288.86
Expert Solution
steps

Step by step

Solved in 3 steps with 5 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Stock Indices
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Corporate Fin Focused Approach
Corporate Fin Focused Approach
Finance
ISBN:
9781285660516
Author:
EHRHARDT
Publisher:
Cengage
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Intermediate Financial Management (MindTap Course…
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS