Example ƒ 84

Consider a portfolio of stock A and B, where the weight of stock A is 1/2 and assume the following:

ƒ

What is the beta coefficient of the portfolio?

ƒ

Compute the residual variance of the portfolio assuming a SFM model.

ƒ

Compute the variance of the portfolio assuming a SFM model.

Single-period random cash flows: Factor models - SFM

.

(^2825) ,
0
;
(^0625) ,
0
;
(^08) ,
0
;
(^04) ,
0
;
(^5) ,
1
; 5
,
0
2
2
2
2

=

=

=
B
A
B
A
B
A
σ
σ
σ
σ
β
β
ε
ε