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

R_A = 2.5% + 0.60R_M + e_A

R_B = -1.5% + 0.7R_M + e_B

_M = 19%; R-square_A = 0.24; R-square_B = 0.18

Assume you create portfolio P with investment proportions of 0.70 in A and 0.30 in B.

a. What is the standard deviation of the portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.)

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

c. What is the firm-specific variance of your portfolio? (Do not round your intermediate calculations. Round your answer to 4 decimal places.)

d. What is the covariance between the portfolio and the market index? (Do not round your intermediate calculations. Round your answer to 3 decimal places.)

rev: 09_15_2017_QC_CS-100395