Problem $7-29($Algo$)$

Assume the return on a market index represents the common factor and all stocks in the economy have a beta of $1.$ Firm$-$specific returns all have a standard deviation of $50\%.$

Suppose an analyst studies $20$ stocks and finds that one$-$half have an alpha of $4\mathrm{.}6\%,$ and one$-$half have an alpha of $-4\mathrm{.}6\%.$ The analyst then buys $$1\mathrm{.}2$ million of an equally weighted portfolio of the positive$-$alpha stocks and sells short $$1\mathrm{.}2$ million of an equally weighted portfolio of the negative$-$alpha stocks.

Required:

a$.$ What is the expected profit $($in dollars$),$ and what is the standard deviation of the analyst's profit? $($Enter your answers in dollars not in millions. Do not round intermediate calculations. Round your answers to the nearest dollar amount.$)$

$\backslash$table$[[$Expected profit,$$,110,400],[$Standard deviation,$$,60,000]]$

b$-1.$ How does your answer for standard deviation change if the analyst examines $50$ stocks instead of $20?($Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to the nearest dollar amount.$)$

$\backslash$table$[[$Standard deviation,$$24,000$