Intro

Assume that the single index model is valid. You've collected

the following information about excess returns for two stocks,

A and $B,$ their residual standard deviations, and the standard

deviation of the macroeconomic factor, $M$ :

$R_A=-0\mathrm{.}1+0\mathrm{.}7R_M+e_A$

$R_B=0\mathrm{.}2+1\mathrm{.}3R_M+e_B$

$(e_A)=0\mathrm{.}4$

$(e_B)=0\mathrm{.}2$

${}_M=0\mathrm{.}29$

Part $1$

What is the standard deviation of stock A$?$

Part $2$

What is the standard deviation of stock B$?$

Part $3$

What is the covariance between the returns on stocks A and

B$?$