Consider an economy with two types of firms, Sand I. S firms all move together. I firms moveindependently. For both types of firms, there is a39% probability that the firm will have a 27 %return and a 61 % probability that the firm will havea-18% return. What is the volatility (standarddeviation) of a portfolio that consists of an equalinvestment in: a. 22 firms of type S? b. 22 firms oftype I? a. What is the volatility (standard deviation)of a portfolio that consists of an equal investmentin 22 firms of type S? Standard deviation is%. (Round to two decimal places.) b. What isthe volatility (standard deviation) of a portfolio thatconsists of an equal investment in 22 firms of typeI? Standard deviation is _ %. (Round to twodecimal places.)

Step 1: we first compute the expected return and standard deviation of returns of each type of…

Answered: Consider an economy with two types of…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 2P: APT An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free...

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APT An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free rate is 6%, the expected return on the first factor (r1) is 12%, and the expected return on the second factor (r2) is 8%. If bi1 = 0.7 and bi2 = 0.9, what is Crisp’s required return?

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