› CFA › CFA Level 1 › Level 1 candidate – can somebody suggest an answer for Q1 part 1? Im sure its easy :(

Level 1 candidate – can somebody suggest an answer for Q1 part 1? Im sure its easy :(

Add A Reply
Login
  • Author
    Posts
    • Avatar of Vanquish81Vanquish81
      Participant
        • CFA Level 1
        15 Aug 2018 at 10:45 pm
        Up
        0
        Down
        ::

        –

      • Avatar of Vanquish81Vanquish81
        Participant
          • CFA Level 1
          15 Aug 2018 at 10:50 pm
          Up
          4
          Down
          ::

          –

        • Avatar of Vanquish81Vanquish81
          Participant
            • CFA Level 1
            15 Aug 2018 at 10:50 pm
            Up
            0
            Down
            ::

            Also can somebody suggest how to work out Beta if you are not given the market standard deviation?

          • Avatar of rsparksrsparks
            Participant
              • CFA Level 2
              16 Aug 2018 at 2:46 am
              Up
              1
              Down
              ::

              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?

            • Avatar of Vanquish81Vanquish81
              Participant
                • CFA Level 1
                16 Aug 2018 at 5:55 am
                Up
                0
                Down
                ::

                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?

              • Avatar of YeshankYeshank
                Participant
                  • CFA Level 1
                  16 Aug 2018 at 7:38 am
                  Up
                  2
                  Down
                  ::

                  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!!

                • Avatar of Vanquish81Vanquish81
                  Participant
                    • CFA Level 1
                    25 Sep 2018 at 7:26 pm
                    Up
                    1
                    Down
                    ::

                    Hi, sorry for the late reply but thank you to all above for the explanation. Helped me pass!

                • Author
                  Posts
                Viewing 6 reply threads
                • You must be logged in to reply to this topic.