Business
Business, 19.03.2021 16:00, alexsince4835

The standard deviation of the market-index portfolio is 35%. Stock A has a beta of 1.40 and a residual standard deviation of 45%. a-1. Calculate the total variance of stock A if its beta is increased by 0.20?
a-2. Calculate the total variance of stock A if its residual standard deviation is increased by 7.54%?
b. An investor who currently holds the market-index portfolio decides to reduce the portfolio allocation to the market index to 90% and to invest 10% in stock A. Which of the following changes (an increase of 0.20 in beta or increase of 7.54% in residual standard deviation) will have a greater impact on the portfolio's standard deviation?
i. Both will have the same impact.
ii. Increase of .20 in beta will have a greater impact.
iii. Increase of 7.54% in the residual standard deviation will have a greater impact.

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Answers: 2

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The standard deviation of the market-index portfolio is 35%. Stock A has a beta of 1.40 and a residu...

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