Suppose that the index model for stocks A and B is estimated from excess returns with the following results: R_A = 2.5% + 0.95R_M + e_A R_B = 1.8% + 1.10R_M + e_{B M} = 27%; R-square_A = 0.23; R-square_B = 0.11 Assume you create a portfolio Q, with investment proportions of 0.50 in a risky portfolio P, 0.30 in the market index, and 0.20 in T-bill. Portfolio P is composed of 60% Stock A and 40% Stock B. What is the standard deviation of portfolio Q?

What is the "firm-specific" risk of portfolio Q?

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