- This topic has 6 replies, 3 voices, and was last updated Sep-187:26 pm by
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Up4
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Up2
You can Easily calculate E(r) for Stock X –
2 + 0.6 (8-2)
Now for Stock Y you first have to calculate Market Sd.. which we know how thanks to rsparks…..but we do not know the Sd of Stock Y itself….But since we are given Sd of X , Covariance bw X and Y , and Correlation bw X and Y we can easily calculate that too!
Correation xy = Covariance xy / sd x * sd y
Just put in the number and you have got sd of stock y!!
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Up1
on my lunch break, so not giving this 100%, but one way to calc beta:
Beta = Corr(Asset,Market) * [Sd(Asset) / Sd(Market)]
.6 = .5 * [ .016 / Sd(Market)]
This will give you the market Sd, but you need to calculate the Beta for each stock (particularly Stock Y) for the CAPM right?
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Up1
Hi, sorry for the late reply but thank you to all above for the explanation. Helped me pass!
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Up0
Also can somebody suggest how to work out Beta if you are not given the market standard deviation?
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Up0
Hi thanks a lot for the reply. Missed the whole reverse engineering to get market SD.
So from above marketSD = (.5*.016)/.6, so marketSD = 1.3%?? I can work out the beta for stock Y from this now.
However Im still a little unsure about part 1. Im taking it that expected return is weighting*variance??
So for stock X that would be .5*(.016)². However for stock Y we are not given its SD to work out the variance?
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