The mean excess return of the index portfolio

Reference no: EM131102122

The data below describe a three-stock financial market that satisfies the single-index model.

Stock	Capitalization	Beta	Mean Excess Return	Standard Deviation
A	$3,000	1.0	10%	40%
B	$1,940	0.2	2	30
C	$1,360	1.7	17	50

The standard deviation of the market index portfolio is 25%.

a. What is the mean excess return of the index portfolio?

b. What is the covariance between stock A and stock B?

c. What is the covariance between stock B and the index?

d. Break down the variance of stock B into its systematic and firm-specific components.

Reference no: EM131102122

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