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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 t-stat 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( apex )) 2 V(Bpex) = (1.32) 2 *0.04 + (0.0530) 2...
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This note was uploaded on 02/06/2012 for the course MGMT 411 taught by Professor Clarke during the Spring '09 term at Purdue University-West Lafayette.
- Spring '09