You are considering making additional investments, and have gathered data about two risky stocks:

Stock: CVX Expected Return: 11.5% Beta: 1.10 Firm-Specific Standard Deviation: 24%

Stock: Forsythe Inc. Expected Return: 16% Beta: .75 Firm-Specific Standard Deviation: 28%

Assumptions: The expected market return (as measured by the S&P 500 Index) is 10%. The standard deviation of the S&P 500 Index is 15%.

a. Calculate the standard deviation of CVX. b. Calculate the standard deviation of Forsythe. c. Calculate the covariance between the two stocks. d. Calculate the correlation between the two stocks. e. How does the single-index model improve on the traditional Markowitz approach to creating portfolios?