# Question

A. Compute the mean return and variance of return for each stock in Problem 1 using

(1) The single-index model

(2) The historical data

In Problem 1

B. Compute the covariance between each possible pair of stocks using

(1) The single-index model

(2) The historical data

C. Compute the return and standard deviation of a portfolio constructed by placing one-third of your funds in each stock, using

(1) The single-index model

(2) The historical data

D. Explain why the answers to parts A.1 and A.2 were the same, while the answers to parts B.1, B.2, and C.1, C.2 were different.

(1) The single-index model

(2) The historical data

In Problem 1

B. Compute the covariance between each possible pair of stocks using

(1) The single-index model

(2) The historical data

C. Compute the return and standard deviation of a portfolio constructed by placing one-third of your funds in each stock, using

(1) The single-index model

(2) The historical data

D. Explain why the answers to parts A.1 and A.2 were the same, while the answers to parts B.1, B.2, and C.1, C.2 were different.

## Answer to relevant Questions

Show that the Vasicek technique leads to a simple proportional weighting of the market beta and the stock’s beta if the standard error of all betas is the same. Suppose Forecast each security’s beta using the Vasicek technique. Repeat Problem 6, assuming now that firms B and C are in the same industry. Problem 6 Using the data from Problem 5, assume the model is now an Industry Index Model where I1 = Im and that I2 is now an industry index. ...Consider the following three investments. Which are preferred if U(W) = W -(1/2)W2? Using geometric mean return as a criterion, which investment is to be preferred in Problem 1? In Problem 1Post your question

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