Using the single factor model for firm with a Beta of 1 and when the standard deviation of the market is .3. A) What can we say about the standard deviation of this firm’s stock?   B) If a new firm Gexco has a Beta of 2 and has a standard deviation of 0.65,       what is this Gexco’s firm specific risk?   C) Use the known information to find the ratio of explained to total                   variance, also known as R-squared. Explain what R-square means using       words such as systematic and firm specific risk. D) If Gexco’s expected return is 20% and the markets expected return is          12% and the risk free rate is 5%, come up with an estimate of Alpha.             Explain and show how a tracking portfolio could be used and what               would result. Is the possible gain risk free?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
  1. Using the single factor model for firm with a Beta of 1 and when the standard deviation of the market is .3.

A) What can we say about the standard deviation of this firm’s stock?

 

B) If a new firm Gexco has a Beta of 2 and has a standard deviation of 0.65,       what is this Gexco’s firm specific risk?

 

C) Use the known information to find the ratio of explained to total                   variance, also known as R-squared. Explain what R-square means using       words such as systematic and firm specific risk.

D) If Gexco’s expected return is 20% and the markets expected return is          12% and the risk free rate is 5%, come up with an estimate of Alpha.             Explain and show how a tracking portfolio could be used and what               would result. Is the possible gain risk free?

 

2).Write out the CAPM Model and explain each part.

 

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Risk and Return
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education