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Suppose that the index model for stocks A and B is estimated from excess returns with the following results: R A = 2.80% + 1.00

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

RA = 2.80% + 1.00RM + eA

RB = -1.00% + 1.30RM + eB

M = 18%; R-squareA = 0.27; R-squareB = 0.13

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.)

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