Question: Problem 8-13 Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 2.80% +

Problem 8-13 Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA =

Problem 8-13 Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 2.80% + 1.00RM + EA RB = -1.00% + 1.30 RM + eB OM = 18%; R-square A = 0.27; R-squares = 0.13 Assume you create portfolio P with investment proportions of 0.70 in A and 0.30 in B. a. What is the standard deviation of the portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.) Standard deviation % b. What is the beta of your portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.) Portfolio beta c. What is the firm-specific variance of your portfolio? (Do not round your intermediate calculations. Round your answer to 4 decimal places.) Firm-specific 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.) Covariance

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