Question: 2. R A = 3% + .7R M + e A s 2eA = 6% s 2M = 16% R B = -2.0% + 1.2R

2. RA = 3% + .7RM + eA s2eA = 6% s2M = 16%

RB = -2.0% + 1.2RM + eB s2eB = 9%

Suppose we construct a portfolio P that has 60% in A and 40% in B. Find the portfolio variance, beta, systematic variance, portfolio-specific variance and the covariance of the portfolio with the index.

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