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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.)

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  1. 10 October, 17:38
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    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
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