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Given the information in the following table, calculate the risk premium to be earned of optimal portfolio using the index model . This is the expected return from the portfolio minus the risk-free rate. Asset Expected return (%) Beta Residual

Given the information in the following table, calculate the risk premium to be earned of optimal portfolio using the index model. This is the expected return from the portfolio minus the risk-free rate.

Asset

Expected return (%)

Beta

Residual std dev

Stock A

0.18

1.9

0.22

Stock B

0.11

1.1

0.14

Stock C

0.09

0.7

0.115

T-bills

0.03

0

0

Index (market)

0.1

Market std deviation

0.2

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Principles of Finance

Principles of Finance

ISBN: 978-1285429649

6th edition

Authors: Scott Besley, Eugene F. Brigham

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