Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 1.6% + 0.70RM eA RB = -1.8% + 0.90RM + eB OM 228; R-squareA 0.20; R-square = 0. 15 Assume you create a portfolio Q, with investment proportions of 0.40 in a risky portfolio P, 0.35 in the market index, and 0.25 in T-bill. Portfolio Pis composed of 70% Stock A and 30% Stock B a. What is the standard deviation of portfolio Q? (Calculate using numbers in decimal form, not percentages. Do not round intermediate calculations. Round your answer to 2 decimal places.) 23.48 % Standard deviation b. What is the beta of portfolio Q? (Do not round intermediate calculations. Round your answer to 2 decimal places. Portfolio beta 0.65 c. What is the "firm-specific" risk of portfolio Q? (Calculate using numbers in decimal form, not percentages. Do not round A ---- I. .diasa -lalas: D....d. c. What is the "firm-specific" risk of portfolio Q? (Calculate using numbers in decimal form, not percentages. Do not round intermediate calculations. Round your answer to 4 decimal places.) Firm-specific d. What is the covariance between the portfolio and the market index? (Calculate using numbers in decimal form, not percentages. Do not round intermediate calculations. Round your answer to 2 decimal places.) 3.17 Covariance Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 1.6% + 0.70RM eA RB = -1.8% + 0.90RM + eB OM 228; R-squareA 0.20; R-square = 0. 15 Assume you create a portfolio Q, with investment proportions of 0.40 in a risky portfolio P, 0.35 in the market index, and 0.25 in T-bill. Portfolio Pis composed of 70% Stock A and 30% Stock B a. What is the standard deviation of portfolio Q? (Calculate using numbers in decimal form, not percentages. Do not round intermediate calculations. Round your answer to 2 decimal places.) 23.48 % Standard deviation b. What is the beta of portfolio Q? (Do not round intermediate calculations. Round your answer to 2 decimal places. Portfolio beta 0.65 c. What is the "firm-specific" risk of portfolio Q? (Calculate using numbers in decimal form, not percentages. Do not round A ---- I. .diasa -lalas: D....d. c. What is the "firm-specific" risk of portfolio Q? (Calculate using numbers in decimal form, not percentages. Do not round intermediate calculations. Round your answer to 4 decimal places.) Firm-specific d. What is the covariance between the portfolio and the market index? (Calculate using numbers in decimal form, not percentages. Do not round intermediate calculations. Round your answer to 2 decimal places.) 3.17 Covariance
