Suppose that the index model for stocks A and B is estimated from excess returns with the following results:
RA = 2.6% + 0.90RM + eA
RB = –2% + 1.2RM + eB
σM = 26%; R-squareA = 0.21; R-squareB = 0.12
Assume you create portfolio P with investment proportions of 0.70 in A and 0.30 in B.
1. What is the standard deviation of the portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.)
Standard deviation %
2. What is the beta of your portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.)
Portfolio beta
3. What is the firm-specific variance of your portfolio? (Do not round your intermediate calculations. Round your answer to 4 decimal places.)
Firm-specific
4. What is the covariance between the portfolio and the market index? (Do not round your intermediate calculations. Round your answer to 3 decimal places.)