The following are estimates for two stocks.

Stock Expected Return Beta Firm-Specific Standard Deviation A 13% 0.8 30%
B 18 1.2 40 The market index has a standard deviation of 22% and the risk-free rate is 8%.

a. What are the standard deviations of stocks A and B?

b. Suppose that we were to construct a portfolio with proportions:
Stock A: .30 Stock B: .45 T-bills: .25 Compute the expected return, beta, nonsystematic standard deviation, and standard deviation of the portfolio. P-968