Q2 Consider risk measures on the following 3 large cap stocks: Stock Berkshire Hathaway (BRK) Apple...

Transcribed Image Text:

Q2 Consider risk measures on the following 3 large cap stocks: Stock Berkshire Hathaway (BRK) Apple (APPL) Microsoft (MSFT) Beta (B) 0.69 1.15 1.28 Standard Deviation () 23.50% 24.00% 22.80% The standard deviation of the Market Portfolio M= 15.3% a. Calculate the systematic and unsystematic risk of BRK, APPL and MSFT. b. What is BRK's covariance and correlation with the Market Portfolio's return? c. Calculate the following covariances: Cov(BRK, APPL), Cov(BRK,MSFT), COV(APPL,MSFT) d. Consider an equally weighted portfolio of BRK and APPL. Calculate the portfolio's total risk (i.e. variance), systematic risk and unsystematic risk? Verify that o = 210. N2 N e. Consider an equally weighted portfolio of all three stocks. Calculate the portfolio's total risk (i.e. variance), systematic risk and unsystematic risk? Verify that % = 10. What happens to unsystematic risk as the number of assets becomes very large? N Q2 Consider risk measures on the following 3 large cap stocks: Stock Berkshire Hathaway (BRK) Apple (APPL) Microsoft (MSFT) Beta (B) 0.69 1.15 1.28 Standard Deviation () 23.50% 24.00% 22.80% The standard deviation of the Market Portfolio M= 15.3% a. Calculate the systematic and unsystematic risk of BRK, APPL and MSFT. b. What is BRK's covariance and correlation with the Market Portfolio's return? c. Calculate the following covariances: Cov(BRK, APPL), Cov(BRK,MSFT), COV(APPL,MSFT) d. Consider an equally weighted portfolio of BRK and APPL. Calculate the portfolio's total risk (i.e. variance), systematic risk and unsystematic risk? Verify that o = 210. N2 N e. Consider an equally weighted portfolio of all three stocks. Calculate the portfolio's total risk (i.e. variance), systematic risk and unsystematic risk? Verify that % = 10. What happens to unsystematic risk as the number of assets becomes very large? N