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Portfolio Theory: Standard Deviation of Stock Returns, Required Return, Risk Premium

1. The standards deviation of stock returns for stock A is 40%. The standard deviation of the market return is 20%. If the correlation between stocks A and the market is 0.70, what is Stock A's Beta

2. An analyst has molded the stock of Crisp Trucking using a two- factor APT model. The risk- free rate is 6%, the expected return on the first factor (r1) is 12%, and the expected return on the second factor (r2) is 8%. If (bi1) = 0.7 and bi2 = 0.9, what is Crisp's required return?

3. An analyst has molded the stock of a company using Fame-French three factor model. The risk- free rate is 5%, the required market return is 10%, the risk premium for small stocks (rsmb) is 3.2%, and the risk premium for value stocks (rhml) is 4.8%. if ai= 0, bi= 1.2, ci= -0.4 and di= 1.3, what is the stock's required return?

Must be done using Excel worksheet.

Solution Summary

The solution is attached as an Excel files and calculates the beta of certain stocks when given their standard deviation and the required turn of two types of stock.

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