CAPM Formulas

Question 1

The variance of the portfolio

Answer 1

δ(p)^2= w(a)^2*δ(a)^2+ w(b)^2*δ(b)^2+ 2*w(a)*w(b)*δ(ab) or
δ(p)^2= w(a)*[w(a)*δ(a)^2+ w(b)*δ(ab)]+ w(b)*[w(b)*δ(b)^2+ w(a)*δ(ab)]

Question 2

The covariance between asset A and asset B

Answer 2

δ(ab)= ρ(12)δ(a)δ(b)

Question 3

The beta of the portfolio

Answer 3

β(p)= [w(a)*δ(a)^2+w(b)*δ(ab)]/δ(p)^2 or 
β(p)= w(a)*β(a)+ w(b)*β(b)

Question 4

The beta of the asset

Answer 4

β(i)= δ(ip)/δ(p)^2

Question 5

The covariance of the asset with the portfolio

Answer 5

δ(ap)= w(a)δ(a)^2+ w(b)δ(ab)+ w(c)*δ(ac)…