What percentage of the variance of the stock return

Reference no: EM133269666

Question - A portfolio manager believes she has identified an underpriced stock. The stock is expected to yield an alpha of 0.01 and have a beta of 1.2 when FTSE100 is used as the benchmark in a single index model. Show step-by-step how the manager can create a market neutral portfolio using the underpriced stock, an exchange traded fund that tracks FTSE100, and a risk-free UK treasury security.

Given the information in part (a), if the standard deviation of FTSE100 returns is 0.20 and the standard deviation of the stock's residual returns is 0.12, what percentage of the variance of the stock's return is due to firm specific factors?

Reference no: EM133269666

Questions Cloud

Determine each entitys responsibility : Determine each entity's responsibility and the ethical implications of the scandal on Apple. What do you recommend to prevent another similar scandal

Forensic investigation may cause civil litigation : The file server of your company is hacked, and sensitive financial data is sold to the competitors. You are appointed as the forensics investigator of the secur

What is the fair interest rate for this forward contract : The annual interest rate of a bond that matures 3 years from now is 4%, What is the fair interest rate for this forward contract

What is the purpose of the bank reconciliation : ACCT-UB New York University Why is it important to have a petty cash fund available in a company and What is the purpose of the bank reconciliation

What percentage of the variance of the stock return : The standard deviation of the stock's residual returns is 0.12, what percentage of the variance of the stock's return is due to firm specific factors

How would it affect the tacit collusion among the firms : Why or why not? How does this clause affect the tacit agreement? If the company agrees to the new contract, what will be the effect on the tacit agreement

What is the implied volatility of the option : An at-the-money equity put option is currently trading for $1.80. What is the implied volatility of the option currently being priced

How should suzie plan production over the three quarters : DSO 547 University of Southern California How should Suzie plan production over the three quarters to minimize the combined production and inventory holding

Disruptive analytics technology case study : You have been assigned as the project manager for the implementation of a claims processing system for a major insurance company. This company offers a variety

User Account

All Pages