Assume the return on a market index represents the common factor and all stocks in the economy have a beta of 1. Firm-sp

[answerhappygod]

Assume the return on a market index represents the common factor
and all stocks in the economy have a beta of 1. Firm-specific
returns all have a standard deviation of 30%.
Suppose an analyst studies 20 stocks and finds that one-half
have an alpha of 3%, and one-half have an alpha of −3%. The analyst
then buys $1 million of an equally weighted portfolio of the
positive-alpha stocks and sells short $1 million of an equally
weighted portfolio of the negative-alpha stocks.
Required:
a. What is the expected profit (in
dollars), and what is the standard deviation of the analyst’s
profit? (Enter your answers in dollars not in
millions. Round your answers to the nearest
dollar amount.)
b-1. How does your answer for standard
deviation change if the analyst examines 50 stocks instead of
20? (Enter your answer in dollars not
in millions. Round your answer to the nearest
dollar amount.)
b-2. How does your answer for standard
deviation change if the analyst examines 100 stocks instead of
20? (Enter your answer in dollars not in
millions.)