Consider the Following Historical Data for the Returns on Assets

question 21

Essay

Consider the following historical data for the returns on assets A and B and the market portfolio:
$\begin{array}{|c|c|c|c|}\hline \text { Period } & \text { Asset A } & \text { Asset B } & \text { Market Portfolio } \\\hline 1 & 10 \% & 6 \% & 4 \% \\\hline 2 & 3 \% & 6 \% & 1 \% \\\hline 3 & 5 \% & 2 \% & 5 \% \\\hline 4 & 2 \% & 4 \% & 2 \% \\\hline 5 & 1 \% & 2 \% & 1 \% \\\hline\end{array}$

a. What is the covariance between asset A and asset B?
b. If the beta of asset B is 0.5, what is the systematic return and non-systematic return for asset B in each period?

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Definitions:

Frequency Distribution

A statistical representation showing the number of observations within each given interval.

Sample

A subset of a population chosen for measurement, observation, or questioning to provide statistical information about the whole.

Frequency Distribution

The representation of data that shows the number of instances in which a variable takes each of its possible values.

Frequency Distribution

A summary of how often different values occur within a dataset, usually presented in a table or graphical format.