Examples ƒ 83

Given the following info and the a

ssumption of a SFM, what is the

covariance between stocks A and B?

ƒ

Consider a portfolio of stock A and B, where the weight of stock A is 2/3 and assume the following:

ƒ

What is the residual variance of

the portfolio if the SFM is assumed?

ƒ

What is the residual variance

of the portfolio without the SFM?

Single-period random cash flows: Factor models - SFM

.

(^09) ,
0
; 3
, 1
;
(^85) ,
0
2 1

=

=M
F
B
A
σ
β
β
(
)
.
(^01) ,
0
,
;
(^06) ,
0
;
(^02) ,
0
2
2

=

B
A
Cov
B
A
ε
ε
σ
σ
ε
ε