The following are estimates for two of the stocks in problem 1.
| Stock Don't use plagiarized sources. Get Your Custom Essay on compute the expected return standard deviation beta and nonsystematic standard devia 551809 For $10/Page 0nly | 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: | 0.3 |
| Stock B: | 0.45 |
| T-bills: | 0.25 |
Compute the expected return, standard deviation, beta, and nonsystematic standard deviation of the portfolio.
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