Solutions of selected review problems from Chap.12
12.2
a.
Let
m
= systematic risk portion of return:
1
1
2
2
3
3
.0042(4,480
4,416)
1.4(4.3%
3.1%
0.67(11.8%
9.5%)
0.23659
m
F
F
F
m
m
β
β
β
=
∆
+
∆
+
∆
=





=
b.
Let
ε
= the unsystematic portion of risk, since the news was only about this firm:
2.6%
ε
= 
c.
Total Return = Expected return, plus 2 the components of unexpected return: the
systematic risk portion of return and the unsystematic portion:
9.5%
23.659%
2.6%
30.559%
R
R
m
ε
=
+
+
=
+

=
12.5
a.
Since five stocks have the same expected returns and the same betas, the
portfolio also has the same expected return and beta.
However, the unsystematic
risks might be different:
(
29
1
2
1
2
3
4
5
1
11.0
0.84
1.69
5
p
R
F
F
ε
ε
ε
ε
ε
=
+
+
+
+
+
+
+
b.
(
29
(
29
1
2
1
2
3
4
5
j
1
2
3
4
5
1
2
1
11.0
0.84
1.69
5
1
1
N
,
0, but
are finite, so
0
N
Thus,
11.0
0.84
1.69
p
p
R
F
F
As
s
N
R
F
F
ε
ε
ε
ε
ε
ε
ε
ε
ε
ε
ε
=
+
+
+
+
+
+
+
→ ∞
→
+
+
+
+
→
=
+
+
12.7
a.
In order to find standard deviation (notated here,
s
), you must first find the
Variance, since
s
Var
=
.
Recall from Statistics a property of Variance:
if:
Z
aX
Y
=
+
%
%
%
Answers to EndofChapter Problems
B175
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 Spring '09
 MARYHARDY
 Standard Deviation, Variance, Probability theory, Ri, endofchapter problems, systematic risk portion

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