Purchase Solution

# Stock Variance

Not what you're looking for?

The standard deviation of the market index portfolio is 20%. Stock A has a beta 1.5 and residual standard deviation of 30%.

A) What would make for a larger increase in the stock variance, an increase of 1.5 in its beta or an increase of 3% in its residual standard deviation?

B) An inventor who currently holds the market index portfolio decides to reduce the portfolio allocation to the market index to 90% and to invest 10% in stock A. which of the changes in A, will have greater impact on the portfolio standard deviation?

##### Solution Summary

The expert examines stock variances and standard deviation for market index portfolios.

##### Solution Preview

Hello

Kindly find attached tutorial having some ideas, references and content related to the finance problem.

This response should be useful for you to develop better understanding with regard to the given topics. Kindly use this work for your reference only and please do not use this content in your assignment or homework.

Calculation of Stock Variance

Given:
Standard deviation of market index portfolio: (?m) = 20% or 0.2
Beta of stock A: (?) = 1.5
Residual standard deviation of stock A: (?A) = 30% or 0.3
Stock variance at current value: Market risk + Diversifiable risk
Or ?12 = ?2× ?m2+ ?A2 (Daves & Daves, 2012)
= 1.52×0.22+0.32
= 2.25×0.04 + 0.09
=0.09+0.09
=0.18 or 18%

(A): Change in variance, if residual standard deviation increases by 3%:
Standard deviation of market index portfolio: (?m) = 20% or 0.2
Beta of stock A: ...

##### Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

##### Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

##### SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

##### Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

##### Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.