One Factor Model Standard deviation of securities
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On the basis of a one factor model, for two securities A and B:
RAt=5% + .8Ft + eAt
RBt=7% + 1.2Ft + eBt
@f=18%
@eA=25%
@eB=15%
Calculate the standard deviation of each security .
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Solution Summary
The solution calculates the standard deviation of securities using one factor model.
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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% + ...
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