Unformatted text preview: Cov(Apex, Bpex) = 0.91*1.32*0.04 = 0.0480 b) You want to test the hypothesis that the alpha of Bpex is equal to 0. Based on the regression output from above, what is the conclusion from your test? The tstat associated with the null hypothesis that the alpha of Bpex is zero is: 0.0044/0.0020 = 2.2. This is greater than 2 in absolute value, so we reject the null. c) Based on the regression output, which company has higher idiosyncratic risk? The standard deviation of the residual term for Apex is 0.045. The standard deviation of the residual term for Bpex is 0.053. Therefore, Bpex has higher idiosyncratic risk. d) What is the total variance of Bpex stock return according to the index model? V(Bpex) = (beta) 2 *Var(S&P) + (SD( ε apex )) 2 V(Bpex) = (1.32) 2 *0.04 + (0.0530) 2...
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 Spring '09
 Clarke
 Management, Normal Distribution, Standard Deviation, Variance, Apex, Deviation, BPEX

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