The following are estimates for two stocks. Firm- Specific Expected Standard Stock Return Beta Deviation AB 14% 0.90 30% 21 1.40 42 The market index has a standard deviation of 20% and the risk-free rate is 7%. Required: a. What are the standard deviations of stocks A and B? b. Suppose that we were to construct a portfolio with proportions: Stock A Stock B 0.30 0.45 0.25 T-bills Compute the expected return, beta, nonsystematic standard deviation, and standard devia

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
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The following are estimates for two stocks.
Firm-
Specific
Expected
Standard
Stock
Return
Beta
Deviation
A
14%
0.90
30%
B
21
1.40
42
The market index has a standard deviation of 20% and the risk-free rate is 7%.
Required:
a. What are the standard deviations of stocks A and B?
b. Suppose that we were to construct a portfolio with proportions:
Stock A
Stock B
T-bills
0.30
0.45
0.25
Compute the expected return, beta, nonsystematic standard deviation, and standard deviation of the portfolio.
Transcribed Image Text:The following are estimates for two stocks. Firm- Specific Expected Standard Stock Return Beta Deviation A 14% 0.90 30% B 21 1.40 42 The market index has a standard deviation of 20% and the risk-free rate is 7%. Required: a. What are the standard deviations of stocks A and B? b. Suppose that we were to construct a portfolio with proportions: Stock A Stock B T-bills 0.30 0.45 0.25 Compute the expected return, beta, nonsystematic standard deviation, and standard deviation of the portfolio.
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