6. The data below describe a three-stock financial market that satisfies the single-index model. The standard deviation of the market index portfolio is 25%. Stock Beta A 1.0 B 0.2 C 1.7 Capitalization $3,000 $1,940 $1,360 Mean Excess Return Standard Deviation 10% 2% 17% 40% 30% 50% a. What is the mean excess return of the index portfolio? b. What is the covariance between stock A and stock B? c. What is the covariance between stock B and the index? d. Break down the variance of stock B into its systematic and firm-specific components.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question
6. The data below describe a three-stock financial market that satisfies the single-index model. The standard
deviation of the market index portfolio is 25%.
Stock
Beta
A
1.0
B
0.2
C
1.7
Capitalization
$3,000
$1,940
$1,360
Mean Excess Return
10%
2%
17%
a. What is the mean excess return of the index portfolio?
b. What is the covariance between stock A and stock B?
Standard Deviation
40%
30%
50%
c. What is the covariance between stock B and the index?
d. Break down the variance of stock B into its systematic and firm-specific components.
Transcribed Image Text:6. The data below describe a three-stock financial market that satisfies the single-index model. The standard deviation of the market index portfolio is 25%. Stock Beta A 1.0 B 0.2 C 1.7 Capitalization $3,000 $1,940 $1,360 Mean Excess Return 10% 2% 17% a. What is the mean excess return of the index portfolio? b. What is the covariance between stock A and stock B? Standard Deviation 40% 30% 50% c. What is the covariance between stock B and the index? d. Break down the variance of stock B into its systematic and firm-specific components.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 9 steps

Blurred answer
Knowledge Booster
Risk and Return
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
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education