RA | 3% | + | 1.2 | RM | + | eA |
RB | 4% | + | 1.4 | RM | + | eB |
Market SD | 20% | |||||
R-SquareA | 20% | |||||
R-SquareB | 12% | |||||
Find Standard Deviation of Stock A |
47.37% |
||
50.28% |
||
40.72% |
||
53.67% |
Beta = 1.2 (form the equation 3% + 1.2 RM + eA)
R-Square A = (Correlation of Stock A with the market)2
(Correlation of Stock A with the market)2 = 20%
Correlation of Stock A with the market = 0.2
Correlation of Stock A with the market = 0.4472
Beta = Correlation of Stock A with the market * ( Standard Deviation of Stock A / Standard Deviation of Market)
1.2 = 0.4472 * (Standard Deviation of Stock A / 20%)
Standard Deviation of Stock A = (1.2 * 20%) / 0.4472
Standard Deviation of Stock A = 53.67%
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