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

Suppose that the index model for stocks A and B is estimated from excess returns with the following results:

RA = 2.50% + 0.95RM + eA RB = -1.80% + 1.10RM + eB σM = 27%;

R-squareA = 0.23; R-squareB = 0.11

Assume you create portfolio P with investment proportions of 0.60 in A and 0.40 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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jeff jeffy answered 2 years ago

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

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