# Question

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. Assuming that firms A and B are in the same industry, calculate the covariance of returns.

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. Assuming that firms A and B are in the same industry, calculate the covariance of returns.

## Answer to relevant Questions

Given the multi-index model Where I*1 and I*2 are correlated, and given the regression equation I*2 = 1 + 1.3I1 + dt, transform the equation for Ri into one with orthogonal indexes. What is the optimum portfolio assuming short sales if RF = 5% and p = 0.5? Use the data in Problem 4. In Problem 4 In Problem 5, what is the minimum amount that the $5 outcome would have to be changed to so that the investor is indifferent between the two investments? In Problem 5 Consider the following returns: What is the average return in each market from the point of view of a U.S. investor and of a U.K. investor? Write the CAPM shown in Problem 4 in price form. In Problem 4Post your question

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