The index model has been estimated for stocks A and B with the following results: R_A= -0.06 + 0.79R_M+ e_A R_B= 0.03 + 2.75R_M+ e_B

The standard deviation of the market index is 18%; the residual standard deviation of the error terms for stock A is 48%; the residual standard deviation of the error terms for stock B is 33%.

a. What is the covariance between the returns on stocks A and B? Enter your answer rounded to two decimal places.

b. What is your best estimate of the total variance of the excess returns on stock B? Enter your answer rounded to two decimal places.

c. What is your best estimate of the R-Squared in the regression of stock B on the market index M? Enter your answer as a decimal rounded to four decimal places.

d. You want to form a complete portfolio with 50% invested in Stock A, 35% invested in Stock B, and 15% invested in a riskfree asset with expected return of 3%, beta of 0, and residual standard deviation of 0%. Using the Index Model, what is your estimate of the standard deviation of this complete portfolio? Enter your answer rounded to two decimal places.