#### Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

#### CFA Events Calendar

View full calendar

#### CFA Events Calendar

View full calendar

#### Recommended Discussions

See how our partners can help you ace your CFA exams.

# Level 1 candidate - can somebody suggest an answer for Q1 part 1? Im sure its easy :(

Ireland Posts: 7 Associate
edited January 2016

## Comments

• Ireland Posts: 7 Associate
• Ireland Posts: 7 Associate
Also can somebody suggest how to work out Beta if you are not given the market standard deviation?
• MelbournePosts: 80 Sr Associate
on my lunch break, so not giving this 100%, but one way to calc beta:

Beta = Corr(Asset,Market) * [Sd(Asset) / Sd(Market)]

.6 = .5 * [ .016 / Sd(Market)]

This will give you the market  Sd, but you need to calculate the Beta for each stock  (particularly Stock Y) for the CAPM right?

• Ireland Posts: 7 Associate
Hi thanks a lot for the reply. Missed the whole reverse engineering to get market SD.

So from above marketSD = (.5*.016)/.6, so marketSD = 1.3%?? I can work out the beta for stock Y from this now.

However Im still a little unsure about part 1. Im taking it that expected return is weighting*variance??

So for stock X that would be .5*(.016)². However for stock Y we are not given its SD to work out the variance?
• IndiaPosts: 17 Associate
You can Easily calculate E(r) for Stock X -

2 + 0.6 (8-2)

Now for Stock Y you first have to calculate Market Sd.. which we know how thanks to rsparks.....but we do not know the Sd of Stock Y itself....But since we are given Sd of X , Covariance bw X and Y , and Correlation bw X and Y we can easily calculate that too!

Correation xy = Covariance xy / sd x * sd y

Just put in the number and you have got sd of stock y!!

• Ireland Posts: 7 Associate
Hi, sorry for the late reply but thank you to all above for the explanation. Helped me pass!
Sign In or Register to comment.