The following are estimates for two stocks. Stock Expected Return Beta Firm-Specific Standard Deviation A 12 0.85 32% B 18 1.40 48% The market index has a standard deviation of 22% and the risk-free rate is 11%. a. What are the standard deviations of stocks A and B? (Do not round intermediate calculations. Round your answers to 2 decimal places.) b. Suppose that we were to construct a portfolio with proportions: Stock A 0.35 Stock B 0.40 T-bills 0.25 Compute the expected return, standard deviation, beta, and nonsystematic standard deviation of the portfolio. (Do not round intermediate calculations. Enter your answer for Beta as a number, not a percent. Round your answers to 2 decimal places.)
The following are estimates for two stocks. Stock Expected Return Beta Firm-Specific Standard Deviation A 12 0.85 32% B 18 1.40 48% The market index has a standard deviation of 22% and the risk-free rate is 11%. a. What are the standard deviations of stocks A and B? (Do not round intermediate calculations. Round your answers to 2 decimal places.) b. Suppose that we were to construct a portfolio with proportions: Stock A 0.35 Stock B 0.40 T-bills 0.25 Compute the expected return, standard deviation, beta, and nonsystematic standard deviation of the portfolio. (Do not round intermediate calculations. Enter your answer for Beta as a number, not a percent. Round your answers to 2 decimal places.)
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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The following are estimates for two stocks.
| Stock | Expected Return | Beta | Firm-Specific Standard Deviation | ||||
| A | 12 | 0.85 | 32% | ||||
| B | 18 | 1.40 | 48% | ||||
The market index has a standard deviation of 22% and the risk-free rate is 11%.
a. What are the standard deviations of stocks A and B? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
b. Suppose that we were to construct a portfolio with proportions:
| Stock A | 0.35 |
| Stock B | 0.40 |
| T-bills | 0.25 |
Compute the expected return, standard deviation, beta, and nonsystematic standard deviation of the portfolio. (Do not round intermediate calculations. Enter your answer for Beta as a number, not a percent. Round your answers to 2 decimal places.)
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