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  3. suppose that the index model for stocks a and b is

Suppose that the index model for stocks A and B is estimated from excess returns...

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Accounting

Suppose that the index model for stocks A and B is estimated from excess returns with the following results:
RA =2.00%+0.40RM + eA
RB =-1.80%+0.90RM + eB
\sigma M =15%; R-squareA =0.30; R-squareB =0.22
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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