Reference no: EM131330057
Assume that the market index portfolio (RM) consists only of the following three stocks (stocks A, B and C). The data below shows the capitalization of each stock (the market value of outstanding shares), their average excess returns (or risk premium) E(Ri) and their standard deviation. Assume that all stocks satisfy the assumptions of the Single Index Model (as we discussed in class and as in the lecture notes). You also know that the standard deviation of the market index portfolio is σM = 25%. (Note: the capitalization of the market index is the total sum of capitalization of the three stocks. The index is build proportionally, i.e., each stock’s weight in the portfolio is proportional to its capitalization relative to the caputalization of the market portflio(index)).
Capitalization Beta Average Excess Standard
Returns Deviation
Stock A 3,000 1.0 10% 40%
Stock B 1,940 0.2 2% 30%
Stock C 1,360 1.7 17% 50%
a) What is the mean excess return of the index (market) portfolio (E(RM))?
b) Based on the SIM model, what is the covariance between Stock A and Stock B?
c) Based on the SIM model, what is the covariance between Stock B and the market index?
d) Break down the variance of Stock B into systematic and firm-specific components.
|
Research about a fortune 500 company
: Research a Fortune 500 company, but do not use the same company you used for the Week 1 "Social Responsibility" assignment. Examine the company's strategic philanthropy and how it impacts profits, brand, image and turnover, as well as society as a..
|
|
What are major steps of process maria will have to oversee
: Based on what you know about ISO 27000 program certification, what are the major steps of the process Maria will have to oversee?
|
|
Why workplace diversity is important to a company culture
: Identify three examples that demonstrate the main reasons why workplace diversity is important to a company's culture and performance
|
|
List and describe key areas of concern for risk management
: List and describe the key areas of concern for risk management.- Why is identification of risks, through a listing of assets and their vulnerabilities, so important to the risk management process?
|
|
The market index portfolio consists
: Assume that the market index portfolio (RM) consists only of the following three stocks (stocks A, B and C). The data below shows the capitalization of each stock (the market value of outstanding shares), their average excess returns (or risk premium..
|
|
Who is responsible for risk management in an organization
: Who is responsible for risk management in an organization?- Which community of interest usually takes the lead in information asset risk management?
|
|
Normal operation of the use case
: Draw a sequence diagram to illustrate the normal operation of the Use Case for "Change DVDs" for the DVD player described in the previous question.
|
|
Review the case of dennis lynn rader
: Your essay should have an introduction summarizing the criminal and case, a body that discusses the issues surrounding the case (how were they able to avoid being caught for so long - personality of the offender, lack of evidence available, lack o..
|
|
What is the nlrb and what is its relationship to the nlra
: What is the NLRB? What is its relationship to the NLRA? Lastly, what are the elements that an employee must meet to prove discrimination under the NLRA, and what must an employer show to defend against such a claim
|