Question: Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA 4.50% +1.40RM + A

Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA 4.50% +1.40RM + A RB = -2.20% +1.70RM + eB = OM 24%; R-square 0.30; R-squareg = 0.20 Assume you create a portfolio Q, with investment proportions of 0.50 in a risky portfolio P, 0.30 in the market index, and 0.20 in T-bill. Portfolio Pis composed of 60% Stock A and 40% Stock B. Required: a. What is the standard deviation of portfolio Q? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 2 decimal places. b. What is the beta of portfolio Q? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 2 decimal places. c. What is the "firm-specific" risk of portfolio Q? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 4 decimal places. d. What is the covariance between the portfolio and the market index? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round intermediate calculations. Round your answer to 2 decimal places. a. Standard deviation b. Portfolio beta c. Firm-specific d. Covariance %

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