Need help with a portfolio problem
On the basis of a one factor model, for two securities A and B:
RAt=5% + .8Ft + eAt
RBt=7% + 1.2Ft + eBt
Calculate the standard deviation of each security .
See attached file for proper formatting.
b11= 0.8 =Sensitivity of Security A to the Factor 1 (RAt=5% + .8Ft + eAt)
b21= 1.2 =Sensitivity of Security B to the Factor 1 (RBt=7% + 1.2Ft + ...
The solution calculates the standard deviation of securities using one factor model