Stock Expected Return Beta Firm Specific Standard Deviation

Acme 13% 0.8 30%

Bundu 18% 1.2 40%

The market index has a standard deviation of 22% and the risk free rate is 8%

(a) What are the standard deviations of stocks of Acme and Bundu

(b) Suppose we were to construct a portfolio with proportions:

Stock Acme: 0.30

Stock Bundu: 0.45

T-bills 0.25

compute the expected return, standard deviation, beta, and nonsystematic standard deviation of the portfolio.

Acme 13% 0.8 30%

Bundu 18% 1.2 40%

The market index has a standard deviation of 22% and the risk free rate is 8%

(a) What are the standard deviations of stocks of Acme and Bundu

(b) Suppose we were to construct a portfolio with proportions:

Stock Acme: 0.30

Stock Bundu: 0.45

T-bills 0.25

compute the expected return, standard deviation, beta, and nonsystematic standard deviation of the portfolio.

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