Assume Single Index Model applies to multiple choice questions 1, 2 and 3. Suppose that...
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Finance
Assume Single Index Model applies to multiple choice questions 1, 2 and 3. Suppose that Market Index return has standard deviation of 20% and that the risk-free rate is 3%. Further, suppose that we have two stocks A and B with the following characteristics:
Stock
Expected Return
Beta
Firm-specific Standard Deviation
A
12%
0.5
30%
B
17%
1.9
50%
Now suppose that an investor (Peter) decides to combine Stocks A, B and the risk-free asset in a portfolio using the following weights: Stock A: 40%, Stock B: 50%, Risk-free asset: 10%
1. What is the standard deviation of Stock Bs return?
A. 82.40
B. 13.60
C. 80.90
D. 62.80
E. 120.10
12. Beta of Peters portfolio is,
A. 1.90
B. 1.20
C. 1.15
D. 1.00
E. 0
3. The non-systematic variance of Peters portfolio is,
A. 405
B. 769
C. 1012
D. 1507
E. none of the above
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