What is the standard deviation of return

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Given the single factor model r = E(r) + bF + ε for which 340 stocks rely to generate their returns where F is a factor and b is the factor loading and ε is idiosyncratic error. Stock A which is one of the 340 stocks has an expected return of 7% , a factor loading of b = 0.03, a factor F with a mean of zero following a variance of 1 and a standard deviation of idiosyncratic error of 37%. These characteristics are the same for all the 340 stocks. Risk free rate is 3%. The portfolio we hold has equal weight on each stock and places nothing on the risk-free asset.

Question: What is the standard deviation of return on this portfolio and what is the covariance of the stock return with the return of the portfolio ?

Reference no: EM132999686

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