3). There is a security with 1 = 1 and 2 = 0.8. The standard deviation of its excess return is 20%. Calculate the contribution of firm-specific risk to total risk for this security.

Given a two-factor economy. Assets A and B are well-diversified portfolios. The riskfree rate is 1%. The standard deviations of the excess return of factor portfolios 1 and 2 are 18% and 15% respectively. The two factor portfolios are uncorrelated. Given a two-factor economy. Assets A and B are well-diversified portfolios. The riskfree rate is 1%. The standard deviations of the excess return of factor portfolios 1 and 2 are 18% and 15% respectively. The two factor portfolios are uncorrelated