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One Factor Model Standard deviation of securities

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 .


Solution Preview

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 + ...

Solution Summary

The solution calculates the standard deviation of securities using one factor model