Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA 2.60 +0.90RM eA Ng- -2.00+ 1.20RN+ eB OM- 26 N-aquarea 0.211 R-aquarea 0.12 Assume you create portfollo Pwith investment proportions of 0.70 in A and 0,30 in B a. What is the standard deviation of the portfollo? (Do not round your intermediate calculations. Round your answer to 2 decimal places.) Standard deviation b. What is the beta of your portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.) Portfolilo beta What is the firm-specific variance of your portfolio? (Do not round your intermediate calculations. Round your answer to 4 deci alaces.)

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
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Suppose that the index model for stocks A and B is estimated from excess returns with the following results:
RA - 2.60 + 0.90RM + CA
Rg- -2.00 + 1.20RM + eg
OM- 26, R-equarea 0.21; R-squaren 0.12
Assume you create portfolio Pwith investment proportions of 0.70 in A and 0.30 in B.
a. What is the standard deviation of the portfollo? (Do not round your intermediate calculations. Round your answer to 2 decimal
places.)
Standard deviation
b. What is the beta of your portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.)
Portfolio beta
c. What is the firm-specific variance of your portfolio? (Do not round your intermediate calculations. Round your answer to 4 decimal
places.)
Firm-specific
Transcribed Image Text:Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA - 2.60 + 0.90RM + CA Rg- -2.00 + 1.20RM + eg OM- 26, R-equarea 0.21; R-squaren 0.12 Assume you create portfolio Pwith investment proportions of 0.70 in A and 0.30 in B. a. What is the standard deviation of the portfollo? (Do not round your intermediate calculations. Round your answer to 2 decimal places.) Standard deviation b. What is the beta of your portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.) Portfolio beta c. What is the firm-specific variance of your portfolio? (Do not round your intermediate calculations. Round your answer to 4 decimal places.) Firm-specific
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