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A portfolio manager analyzes 100 stocks and constructs a mean variance efficient portfolio using these 100 securities 13 points a How many estimates are needed to optimize this portfolio

A portfolio manager analyzes 100 stocks and constructs a mean-variance efficient portfolio using these 100 securities. (13 points)

(a) How many estimates are needed to optimize this portfolio? (2 points)

(b) If one could safely assume that stock market returns closely resemble a single-index structure, how many estimates would be needed? (2 points)

The market index has an expected return of 16% and a standard deviation of 20%. Riskfree rate is 4%.

(c) Calculate alpha values for two stocks. (2 points)

(d) Break down the variance of each stock to the systematic and firm-specific components. (3 points)

(e) What are the covariance and correlation coefficient between the two stocks? (2 points)

(f) What is the covariance between each stock and the market index? (2 points)

 

May 02 2020 Read more Less More

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