Solutions to Chapter 1

b. McDonald’s has the lowest total volatility; the standard deviation of its returns is 20.3%. c. ( = (2.46 + 0.84+ 1.45)/3 = 1.58. d. The portfolio will have the same beta as Ford (2.46). The total risk of the portfolio will be (2.46 times the total risk of the market portfolio) because the effect of firm-specific risk will be diversified away. ................
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