Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA 1.80% +0.75RM + eA RB = -2.00% + 1.10RM + eB OM= 23%; R-squareд = 0.18; R-squareg = 0.10 Assume you create portfolio P with investment proportions of 0.60 in A and 0.40 in B. Required: a. what is the standard deviation of the portfolio? Note: Do not round your intermediate calculations. Round your answer to 2 decimal places. Calculate using numbers in d
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA 1.80% +0.75RM + eA RB = -2.00% + 1.10RM + eB OM= 23%; R-squareд = 0.18; R-squareg = 0.10 Assume you create portfolio P with investment proportions of 0.60 in A and 0.40 in B. Required: a. what is the standard deviation of the portfolio? Note: Do not round your intermediate calculations. Round your answer to 2 decimal places. Calculate using numbers in d
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
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Bhupatbhai
![Suppose that the index model for stocks A and B is estimated from excess returns with the following results:
RA = 1.80% + 0.75RM + eA
RB = -2.00% + 1.10RM + eB
OM 23%; R-squareд = 0.18; R-squarep = 0.10
Assume you create portfolio P with investment proportions of 0.60 in A and 0.40 in B.
Required:
a. What is the standard deviation of the portfolio?
Note: Do not round your intermediate calculations. Round your answer to 2 decimal places. Calculate using numbers in decimal
form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%.
b. What is the beta of your portfolio?
Note: Do not round your intermediate calculations. Round your answer to 2 decimal places. Calculate using numbers in decimal
form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%.
c. What is the firm-specific variance of your portfolio?
Note: Do not round your intermediate calculations. Round your answer to 3 decimal places. Calculate using numbers in decimal
form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%.
d. What is the covariance between the portfolio and the market index?
Note: Do not round your intermediate calculations. Round your answer to 2 decimal places. Calculate using numbers in decimal
form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%.
a. Standard deviation
b. Portfolio beta
c. Firm-specific
d. Covariance
0.89
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa5300407-48a8-4262-acd6-c4a7cf0c2902%2Fa79f8aa6-f61f-4629-94c7-82855690fe98%2Fvodj72k_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Suppose that the index model for stocks A and B is estimated from excess returns with the following results:
RA = 1.80% + 0.75RM + eA
RB = -2.00% + 1.10RM + eB
OM 23%; R-squareд = 0.18; R-squarep = 0.10
Assume you create portfolio P with investment proportions of 0.60 in A and 0.40 in B.
Required:
a. What is the standard deviation of the portfolio?
Note: Do not round your intermediate calculations. Round your answer to 2 decimal places. Calculate using numbers in decimal
form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%.
b. What is the beta of your portfolio?
Note: Do not round your intermediate calculations. Round your answer to 2 decimal places. Calculate using numbers in decimal
form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%.
c. What is the firm-specific variance of your portfolio?
Note: Do not round your intermediate calculations. Round your answer to 3 decimal places. Calculate using numbers in decimal
form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%.
d. What is the covariance between the portfolio and the market index?
Note: Do not round your intermediate calculations. Round your answer to 2 decimal places. Calculate using numbers in decimal
form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%.
a. Standard deviation
b. Portfolio beta
c. Firm-specific
d. Covariance
0.89
%
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