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

R_A = 3% + 0.7R_M + e_A

R_B = 2% + 1.2R_M + e_B

_M = 20%; R-square_A = 0.20; R-square_B = 0.12

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.

a. What is the standard deviation of portfolio Q?

b. What is the beta of portfolio Q?

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

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