where R i is the excess return for security i and R M is the market’s excess ret
ID: 2745770 • Letter: W
Question
where Ri is the excess return for security i and RM is the market’s excess return. The risk-free rate is 2%. Suppose also that there are three securities A, B, and C, characterized by the following data:
Now assume that there are an infinite number of assets with return characteristics identical to those ofA, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C? (Enter the variance answers as a percent squared and mean as a percentage. Do not round intermediate calculations. Round your answers to the nearest whole number. Omit the "%" sign in your response.)
be sure to follow the rounding rules and show work I would greatly appreciate it with a thumbs up!
Assume that security returns are generated by the single-index model,Explanation / Answer
Security i E(Ri) (ei) variance i^2=i^2[M^2}+ ei^2 A 0.9 9% 22% B 1.2 12 8 C 1.5 15 17 Calculating square Variance Security i^2 M2 =18%^2 (ei)^2 i^2=i^2[M^2}+ ei^2 A 0.81 3.24% 4.84% 7% B 1.44 3.24% 0.64% 5% C 2.25 3.24% 2.89% 10% Mean Variance Security A 9% 7% Security B 12 5% Security C 15 10%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.