Question 3 (12 Marks) a) You estimate the index model using monthly excess returns for two...
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Question 3 (12 Marks) a) You estimate the index model using monthly excess returns for two companies; Alpha Ltd and Omega Ltd. Selected results are as follows: RAlpha= 0.025 +0.926RM + € Alpha Romaga = -0.004 + 1.5RM + eomaga O(eAlpha) = 0.07 (eomaga) = 0.076 Additionally, the annualised standard deviation of monthly market returns is 0.13025. Required: i) What is the standard deviation of the returns of both Alpha and Omega (2 Marks) ii) To what extent does the market explain the variance of returns, for Alpha and Omega? (2 Marks) iii) What is the correlation between the returns on Alpha and Omega? (2 Marks) iv) What is the covariance between each stock and the market index? (2 Marks) Question 3 (12 Marks) a) You estimate the index model using monthly excess returns for two companies; Alpha Ltd and Omega Ltd. Selected results are as follows: RAlpha= 0.025 +0.926RM + € Alpha Romaga = -0.004 + 1.5RM + eomaga O(eAlpha) = 0.07 (eomaga) = 0.076 Additionally, the annualised standard deviation of monthly market returns is 0.13025. Required: i) What is the standard deviation of the returns of both Alpha and Omega (2 Marks) ii) To what extent does the market explain the variance of returns, for Alpha and Omega? (2 Marks) iii) What is the correlation between the returns on Alpha and Omega? (2 Marks) iv) What is the covariance between each stock and the market index? (2 Marks)
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i To calculate the standard deviation of the returns for Alpha and Omega we need to use the given information on the index model The standard deviatio... View the full answer
Related Book For
Statistics For Business Decision Making And Analysis
ISBN: 9780321890269
2nd Edition
Authors: Robert Stine, Dean Foster
Posted Date:
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