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What is the standard deviation of the portfolio constructed

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Reference no: EM133158173

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Q1. The index model is estimated for the following two stocks.

Stock Expected Return Beta Firm-specific Standard Deviation

A 13% 0.8 30%

B 18% 1.2 40%

The market index has a standard deviation of 22% and the risk-free rate is 8%.

a. What is the standard deviation of stock A? Your answer should be in percentage points and accurate to the hundredth. For example, if your answer is 30.1234%, you should type in 30.12.

b. Suppose now that we construct a portfolio with proportions:

Stock A: 0.30

Stock B: 0.55

T-bills: 0.15

What is the expected return of the portfolio? Your answer should be in percentage points and accurate to the hundredth.

c. What is the beta of the portfolio constructed in question b?

Your answer should be in decimal values and accurate to the hundredth (NOT in percentage points). For example, if the answer is 0.1264, then you should type in 0.13.

d. What is the standard deviation of the portfolio constructed in Question b?

Your answer should be in percentage points and accurate to the hundredth.

e. What is the non-systematic standard deviation of the portfolio constructed in Question b? Your answer should be in percentage points and accurate to the hundredth.

Reference no: EM133158173

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