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Ch 8 problem set

Ch 8 problem set - that the single index model holds If the...

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Ch 8 problem set 1.Discuss the advantages of the single-index model over the Markowitz model in terms of numbers of variable estimates required and in terms of understanding risk relationships . 2.Discuss the security characteristic line (SCL) . 3. Discuss the "adjusted betas" published by Merrill Lynch in Security Risk Evaluation . 4.Suppose you held a well-diversified portfolio with a very large number of securities, and
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Unformatted text preview: that the single index model holds. If the ó of your portfolio was 0.24 and σ M was 0.18, the β of the portfolio would be approximately ________. 5.The index model has been estimated for stocks A and B with the following results: R A = 0.03 + 0.7R M + e A R B = 0.01 + 0.9R M + e B σ M = 0.35 σ(e A ) = 0.20 σ(e B ) = 0.10 The covariance between the returns on stocks A and B is ___________....
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