Suppose that the index model for stocks A and B is estimated from excess returns with the following results:

R_A = 2.6% + 0.90R_M + e_A

R_B = 2.0% + 1.20R_M + e_B

_M = 26%; R-square_A = 0.21; R-square_B = 0.12

Assume you create a portfolio Q, with investment proportions of 0.40 in a risky portfolio P, 0.35 in the market index, and 0.25 in T-bill. Portfolio P is composed of 70% Stock A and 30% Stock B.

a. What is the standard deviation of portfolio Q? (Calculate using numbers in decimal form, not percentages. Do not round intermediate calculations. Round your answer to 2 decimal places.)

Standard Deviation

b. What is the beta of portfolio Q? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Portfolio beta

c. What is the "firm-specific" risk of portfolio Q? (Calculate using numbers in decimal form, not percentages. Do not round intermediate calculations. Round your answer to 4 decimal places.)

Firm-specific

d. What is the covariance between the portfolio and the market index? (Calculate using numbers in decimal form, not percentages. Do not round intermediate calculations. Round your answer to 2 decimal places.)

Covariance