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Required: a. If CM 12%, calculate the variance of returns of securities A, B, and C b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C

Required: a. If CM 12%, calculate the variance of returns of securities A, B, and C b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C

Essentials Of Investments
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
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Assume that security returns are generated by the single - index model, R₁ = α + BR +e, Where R, is i i i M the excess return for security i and R M i i is the market's excess return. The risk - free rate is 3%. Suppose also that there are three securities A, B, and C, characterized by the following data: \table[[Security, B., E(R), σ(e) Assume that security returns are generated by the single-index model, R₁ = ai +BiRM ei where R is the excess return for security / and Ry is the market's excess return. The risk-free rate is 3%. Suppose also that there are three securities A, B, and C, characterized by the following data: Security Bi E(R) o(es) A 0.9 8% 17% B 1.3 12 B C 1.7 16 11 Required: a. If CM 12%, calculate the variance of returns of securities A, B, and C b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C? Complete this
Transcribed Image Text:Assume that security returns are generated by the single - index model, R₁ = α + BR +e, Where R, is i i i M the excess return for security i and R M i i is the market's excess return. The risk - free rate is 3%. Suppose also that there are three securities A, B, and C, characterized by the following data: \table[[Security, B., E(R), σ(e) Assume that security returns are generated by the single-index model, R₁ = ai +BiRM ei where R is the excess return for security / and Ry is the market's excess return. The risk-free rate is 3%. Suppose also that there are three securities A, B, and C, characterized by the following data: Security Bi E(R) o(es) A 0.9 8% 17% B 1.3 12 B C 1.7 16 11 Required: a. If CM 12%, calculate the variance of returns of securities A, B, and C b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C? Complete this
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