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

Assume you create portfolio P with investment proportions of 0.60 in A and 0.40 in B .

i. What is the standard deviation of the portfolio?

ii. What is the beta of your portfolio?

iii. What is the firm-specific variance of your portfolio?

iv. What is the covariance between the portfolio and the market index?

RA = 3% +0.7RM tea Rp =- 2% +1.2RM -2+ eB OM = 20%; R-square= 0.20; R-squarep = 0.12 RA = 3% +0.7RM tea Rp =- 2% +1.2RM -2+ eB OM = 20%; R-square= 0.20; R-squarep = 0.12