The following are estimates for two stocks. Firm- Specific Standard Deviation 34% 44 Expected Stock Return A B 8% 17 Stock A Stock B T-bills Beta 0.90 1.45 The market index has a standard deviation of 22% and the risk-free rate is 10%. Required: a. What are the standard deviations of stocks A and B? b. Suppose that we were to construct a portfolio with proportions: 0.40 0.40 0.20 Compute the expected return, beta, nonsystematic standard deviation, and standard deviation of the portfolio.
The following are estimates for two stocks. Firm- Specific Standard Deviation 34% 44 Expected Stock Return A B 8% 17 Stock A Stock B T-bills Beta 0.90 1.45 The market index has a standard deviation of 22% and the risk-free rate is 10%. Required: a. What are the standard deviations of stocks A and B? b. Suppose that we were to construct a portfolio with proportions: 0.40 0.40 0.20 Compute the expected return, beta, nonsystematic standard deviation, and standard deviation of the portfolio.
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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Transcribed Image Text:The following are estimates for two stocks.
Firm-
Specific
Standard
Deviation
34%
44
Expected
Stock Return
A
B
8%
17
Stock A
Stock B
T-bills
Beta
0.90
1.45
The market index has a standard deviation of 22% and the risk-free rate is 10%.
Required:
a. What are the standard deviations of stocks A and B?
b. Suppose that we were to construct a portfolio with proportions:
0.40
0.40
0.20
Compute the expected return, beta, nonsystematic standard deviation, and standard deviation of the portfolio.
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