6. Suppose the index model for stocks 1 and 2 has the following results R =...
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6. Suppose the index model for stocks 1 and 2 has the following results R = 2% +0.8RM + e, R = -1% + 1.1 RM + 2, M = 20%. The standard deviations of e, and e are 20% and 25% respectively. (1) Calculate the standard deviation of stock 1 and stock 2. (2) What is the covariance between each stock and the market index. (3) What are the covariance and correlation coefficient between these two stocks? (4) Break down the variance of each stock into its systematic and firm-specific component. 6. Suppose the index model for stocks 1 and 2 has the following results R = 2% +0.8RM + e, R = -1% + 1.1 RM + 2, M = 20%. The standard deviations of e, and e are 20% and 25% respectively. (1) Calculate the standard deviation of stock 1 and stock 2. (2) What is the covariance between each stock and the market index. (3) What are the covariance and correlation coefficient between these two stocks? (4) Break down the variance of each stock into its systematic and firm-specific component.
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Answer rating: 100% (QA)
To calculate the required values well use the given information and formulas related to the index model 1 Standard Deviation of Stock 1 The standard d... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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