The standard deviation of the market$-$index portfolio is $30\%.$ Stock A has a beta of $2\mathrm{.}00$

and a residual standard deviation of $50\%.$

a$-1.$ Calculate the total variance of stock $A$ if its beta is increased by $0\mathrm{.}20?($Do not round

intermediate calculations. Enter your answer as a decimal rounded to $4$ decimal

places.$)$

Total variance

$\mathrm{.}6856$

a$-2.$ Calculate the total variance of stock $A$ if its residual standard deviation is increased

by $7\mathrm{.}06\%?($Do not round intermediate calculations. Enter your answer as a

decimal rounded to $4$ decimal places.$)$

Total variance

b$.$ An investor who currently holds the market$-$index portfolio decides to reduce the

portfolio allocation to the market index to $90\%$ and to invest $10\%$ in stock A$.$ Which

of the following changes $($increase of $.20$ in beta or increase of $7\mathrm{.}06\%$ in residual

standard deviation$)$ will have a greater impact on the portfolio's standard deviation?

Increase of $20$ in beta will have a greater impact.

Both will have the same impact.

Increase of $7\mathrm{.}06\%$ in residual standard deviation will have a greater impact.