The standard deviation of the market-index portfolio is 25%. Stock A has a beta of 1.80 and a residual standard deviation of 35%. a. Calculate the total variance for an increase of 0.20 in its beta. (Do not round intermediate calculations. Round your answer to the nearest whole number.)

Question

Business

Izabelle Pace

10 October, 13:51

The standard deviation of the market-index portfolio is 25%. Stock A has a beta of 1.80 and a residual standard deviation of 35%. a. Calculate the total variance for an increase of 0.20 in its beta. (Do not round intermediate calculations. Round your answer to the nearest whole number.)

+2

Answers (1)

Know the Answer?

Kylee Fischer · Answer 1

0.2925

Explanation:

Total variance = Systematic variance + Residual variance

= (β^2) Var (rM) + Var (e)

Where beta β = 1.80 and

residual standard deviation σ (e) = 0.35,

variance = (1.80^2) * 0.25^2 + 0.3^2=.

=3.24 * 0.0625 + 0.09

= 0.2925