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standard deviation of the returns

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1. Consider the single-index model. The alpha of a stock is 0%. The expected return on the market is 12%. The risk-free rate of return is 6%. The expected return on the stock exceeds the risk free rate by 10%. What is the beta of the stock?

2. You estimate an index (CAPM) model running a regression of rHP - rf on a constant and rM - rf where HP stands for Hewlett-Packard. That is you run the model.

a. What is beta for HP?
b. What is alpha for HP?
c. What is the covariance between the RM series and the e HP series?
d. What is the standard deviation of the returns on HP stock?

See attached file for full problem description.

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Solution Summary

The single-index model is applied.

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