The standard deviation of the market-index portfolio is 20%. Stock A has a beta of 2.00 and a residual standard deviation of 30%.

a-1.	Calculate the total variance of stock A if its beta is increased by 0.10? (Do not round intermediate calculations. Enter your answer as a decimal rounded to 4 decimal places.)

Total variance

a-2.	Calculate the total variance of stock A if its residual standard deviation is increased by 2.62% ? (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 .10 in beta or increase of 2.62% in residual standard deviation) will have a greater impact on the portfolio's standard deviation?
	Both will have the same impact. Increase of 2.62% in residual standard deviation will have a greater impact. Increase of .10 in beta will have a greater impact