Problem $8-13$

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

$R_A=1\mathrm{.}80\%+0\mathrm{.}75R_M+e_A$

$R_B=-2\mathrm{.}00\%+1\mathrm{.}10R_M+e_B$

${}_M=23\%$;$R-$square ${?}_{(}()()A)=0\mathrm{.}18$;$R-$square ${?}_{(}()()B)=0\mathrm{.}10$

Assume you create portfolio $P$ with investment proportions $of0\mathrm{.}60in$ A and $0\mathrm{.}40inB2$ decimal

places.