An investor has chosen to invest in two shares A and B. These shares have an...
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An investor has chosen to invest in two shares A and B. These shares have an idiosyncratic (diversifiable) variance given by V (EA) = 1.5 and V (EB) = 2.1 as well as a systematic risk that can be described by a beta value of BA = 0.7 and 8B = 1.2. In addition to the individual variance of the shares, the variance on the market return is V (RRm) = 36.0. Assume further that all the prerequisites for CAPM are valid. 1. Calculate the total variance (total risk) of the return on shares A and B 2. Find the total variance for a portfolio containing both shares A and B, and where share A constitutes a share of 130% of the portfolio and where the unsystematic risk on the portfolio is given by VeA,B = 2.72. An investor has chosen to invest in two shares A and B. These shares have an idiosyncratic (diversifiable) variance given by V (EA) = 1.5 and V (EB) = 2.1 as well as a systematic risk that can be described by a beta value of BA = 0.7 and 8B = 1.2. In addition to the individual variance of the shares, the variance on the market return is V (RRm) = 36.0. Assume further that all the prerequisites for CAPM are valid. 1. Calculate the total variance (total risk) of the return on shares A and B 2. Find the total variance for a portfolio containing both shares A and B, and where share A constitutes a share of 130% of the portfolio and where the unsystematic risk on the portfolio is given by VeA,B = 2.72.
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1 The total variance total risk of the return on shares A and B can be calculated using the followin... 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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