Question: Consider a factor model =()++ where ()=0, and the standard deviation is ()=8.0%. There are two assets: A and B, with =0.5, =2.3. and are

Consider a factor model

=()++

where ()=0, and the standard deviation is ()=8.0%. There are two assets: A and B, with =0.5, =2.3. and are idiosyncratic risk satisfying (,)=0, ()=14.8% and ()=10.3%.

(a) Compute the standard deviation for :

(b) Compute the standard deviation for :

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