SOLVE ONLY E AND F

Suppose that the index model for stocks A and B is estimated from excess returns with the following results. Notice that a coefficient in this question is customized. = . .

=3%++

=2%+1.2+ __ = 0.20 ; __ = 0.12, = 20% ;

a. What is the standard deviation of each stock? b. Break down the variance of each stock to the systematic and firm-specific components. c. What are the covariance and correlation coefficient between the two stocks? d. What is the covariance between each stock and the market index? e. For portfolio P with investment proportions of 0.60 in A and 0.40 in B, rework parts (a), (b) and (d). f. Rework part (e) for portfolio Q with investment proportions of 0.50 in P, 0.30 in the market index, and 0.20 in T-bills.