Suppose that the index model for stocks A and B is estimated from excess returns with the following results: Ra = 3% + 0.7Rm + a Rb = -2% + 1.2 Rm + b m = 20%; R-sqra = 0.2; R-sqrb = 0.12

a. Calculate the standard deviation of each stock

b. Break down the variance of each stock into the systematic and firm-specific components

c. What is the covariance and correlation coefficient between the two stocks?

d. What is the covariance between each stock and the market index?