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Calculating a beta coefficient for a single stock Suppose that the standard deviation of returns for a single stock A is σA = 25%, and the standard deviation of the market return is σM = 15%. If the correlation between stock A and the market is rhoAM = 0.6, then the stock’s beta is . Is it reasonable to expect that the beta value estimated via the regression of stock A’s returns against the market returns will equal the true value of stock A’s beta? No Yes Next, consider a two-asset portfolio consisting of stock A with wA = 75% and an expected return rA = 5% and a standard deviation of σA = 4%, and stock B with rB = 8% and σB = 10%. Assuming that the correlation between stocks A and B is zero, the expected return to the portfolio is , and the portfolio’s standard deviation is . Suppose that the correlation between stocks A and B is rhoAB = 1, instead of zero. Which of the following statements correctly reflects the new data? The risk associated with the portfolio is lower. The expected return to the portfolio is higher. The risk associated with the portfolio is higher. The risk associated with the portfolio is the same as when the correlation is zero. Continue without saving

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Calculating a beta coefficient for a single stock Suppose that the standard deviation of returns for...

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