The following are estimates for two of the stocks in problem 1.
|
Stock |
Expected Return |
Beta |
Firm Specific Standard Deviation |
|
A |
13 |
0.8 |
30 |
|
B |
18 |
1.2 |
40 |
The market index has a standard deviation of 22% and the risk free rate is 8%.
a. What is the standard deviation of stocks A and B?
b. Suppose that we were to construct a portfolio with proportions:
Stock A: .30
Stock B: .45
T bills: .25
Compute the expected return, standard deviation, beta, and nonsystematic standard deviation of the portfolio.