Question

Stock 1 Stock 2
Beta 1.2 0.4
Idiosyncratic Risk 0.05 0.07
Expected Returns of Market Portfolio = 0.13
Variance of the returns of market portfolio = 0.09
Risk-free rate = 0.04
What is the systematic risk of stock 1, under the single factor model?

Answer 1

Answer:

35

25

How do I calculate relative error when the true value is zero?

Say I have xtrue=0 and xtest. If I define relative error as:

relative error=xtrue−xtestxtrue

Then the relative error is always undefined. If instead I use the definition:

relative error=xtrue−xtestxtest