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September 18, 2014

September 18, 2014

Posted by **jerick** on Sunday, September 15, 2013 at 4:16am.

portfolio of two stocks, A and B. The betas of these stocks to the market factor are

1.10 and 0.80, respectively. The total return volatilities of stocks A and B are

σA=0.20 and σB=0.18, and the standard deviation of the factor’s return is 0.15.

1.b. What is the portfolio’s systematic risk (stated as a variance)?

1.c. What is your portfolio’s total risk (stated as a variance), assuming the

idiosyncratic risks of the stocks A and B are uncorrelated?

Answer:

1a) 0.95

1b) systematic risk 0.0203

1c) total risk 0.0181

Can anyone help to double confirm the answers? plus question part c seems to be wrong but I don't know why.

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