ONLY QUESTION 7

5. Security 2 3 1 0.8 1.1 0.9 0.9 1.3 1.1 b2 o ci 2.0 1.0 1.5 = 2.0, 2 = 2.5, calculate Assuming Is are uncorrelated and = 8, = 4, the following using the general multi-index model: (1) Expected returns (2) Variance of return (3) Covariance of return 6. Using the data from Problem 5, assume the model is now an Industry Index Model where I = Im and that I is now an industry index. Assuming that firms A and B are in the same industry, calculate the covariance of returns. 7. Repeat Problem 6, assuming now that firms B and C are in the same industry. ai bil A B 5. Security 2 3 1 0.8 1.1 0.9 0.9 1.3 1.1 b2 o ci 2.0 1.0 1.5 = 2.0, 2 = 2.5, calculate Assuming Is are uncorrelated and = 8, = 4, the following using the general multi-index model: (1) Expected returns (2) Variance of return (3) Covariance of return 6. Using the data from Problem 5, assume the model is now an Industry Index Model where I = Im and that I is now an industry index. Assuming that firms A and B are in the same industry, calculate the covariance of returns. 7. Repeat Problem 6, assuming now that firms B and C are in the same industry. ai bil A B