I got 1.3636 for beta for the problem below(165/121). But I became so unsure about the answer when I solved (c) because then the market risk becomes larger than the variance of Stock A. Beta^2*σ(M)^2=224.98> σ(A)^2=220
Am I making a mistake? Or if my solution is correct,how do I interpret this result?(all the variance of the Stock AS is all due to the Market?)
Thanks in advance for your help!!
*By 165%^2 and 220 %^2, I mean percent-squared. A variance of 165%^2 equals 165/10,000. Thanks.
Suppose that the riskless rate of return is 4% and the expected market return is 12%. The standard deviation of the market return is 11%. Sup- pose as well that the covariance of the return on Stock A with the market return is 165%^2. (a) What is the beta of Stock A? (b) What is the expected return on Stock A? (c) If the variance of the return on Stock A is 220%^2, what percentage of this variance is due to market risk?