Question: Assume that security returns are generated by the single-index model: R i = i + i R m + e i , where R i

Assume that security returns are generated by the single-index model:

R_i=_i + _iR_m + e_i,

where R_i is the return for security i, and R_m is the markets return. The risk-free rate is 3%. The standard deviation of market returns _m =0.20. Suppose also that there are three securities, X, Y, and Z, characterized by the following data:

Security	_i	E(R_i)	_ei
A	0.4	0.09	0.20
B	0.8	0.15	0.10
C	1.4	0.18	0.23

Calculate the variance of returns of securities X, Y, and Z.

VarA =4.64%

VarB = 3.56%

VarC = 13.13%

Calculate the covariance of securities X and Y.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

4. Assume that security returns are generated by the single-index model, where R, is the excess return for security i and R, is the market's excess return. The risk-free rate is 2%. Suppose also that...

Assume that security returns are generated by the single-index model, R i = i + i R M + e i where R i is the excess return for security i and R M is the markets excess return. The risk-free rate is...

Assume that security returns are generated by the single-index model, Ri = i + iRM + ei where Ri is the excess return for security i and RM is the markets excess return. The risk-free rate is 2%....

I can't seem to get any answers, please help asap! Problem Set #7 1. (a) (b) (c) (d) In a multifactor APT model, the coefficients on the macro factors are often called: systemic risk. firm-specific...

Having trouble with these 5 questions if you need anymore information will provide need it asap would be appreciated 1. Suppose that two factors have been identified for the U.S. economy: the growth...

Just have a few problems with these investment questions if anyone could help don't need to show work 1. Suppose that two factors have been identified for the U.S. economy: the growth rate of...

Assume that security returns are generated by the single-index model, Ri ai + BRM + ei where R is the excess return for security i and Ry is the market's excess return. The risk-free rate is 4%....

Assume that security returns are generated by the single-index model, RI + RM where R is the excess return for security and Ry is the market's excess return. The risk-free rate is 3%. Suppose also...

Problem 10-8 Assume that security returns are generated by the single-index model, R i = i + i R M + e i where R i is the excess return for security i and R M is the markets excess return. The...

The effect of a number of open feedwater heaters on the thermal efficiency of an ideal cycle is to be studied. Steam leaves the steam generator at 20 MPa, 600C, and the cycle has a condenser...

The companys overhead costs of 108000 are allocated based on labor cost Assume 4000 units of product A and 5000 units of Product B are produced What amount of production costs would be assigned to...

Suppose you have a project whose discounted payback is equal to its termination date. What can you say for sure about ins prt Multiple Choice The discounted payback will be greater than zero. The NPV...

Add "Viggo Mortenslet cast = new Map ( ) ;en " to the cast as the key, with value "Aragorn".