Finance question
posted by jerick .
Suppose CAPM is true. You are considering investing in an equally weighted
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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