Question
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: R A = 1.50% + 0.55
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 1.50% + 0.55RM + eA RB = -1.40% + 0.60RM + eB M = 18%; R-squareA = 0.25; R-squareB = 0.16 Assume you create portfolio P with investment proportions of 0.60 in A and 0.40 in B. a. What is the standard deviation of the portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.)
b. What is the beta of your portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.)
c. What is the firm-specific variance of your portfolio? (Do not round your intermediate calculations. Round your answer to 4 decimal places.)
d. What is the covariance between the portfolio and the market index? (Do not round your intermediate calculations. Round your answer to 3 decimal places.)
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