Assume a two-factor model explains stock returns. Regression estimates of stocks A and B on the two factors are given below.

Stock		1	2	e
A	2	1.2	-0.5	4
B	3.5	-0.8	2.0	3

Assume further that factor one has expected return of 10 and standard deviation of 8. Factor two has expected return of 5 and standard deviation of 6.

a) Calculate expected returns for A and B.

b) Calculate standard deviations for A and B.

c) Calculate expected return on a portfolio that invests 60% in A and 40% in B.