Question: The following table provides the single-index model estimates for two stocks. Stock Expected Return Beta Firm-Specific Standard Deviation 14% 0.90 40% B 19% 1.25 30%

The following table provides the single-index model estimates for two stocks.

The following table provides the single-index model estimates for two stocks. Stock Expected Return Beta Firm-Specific Standard Deviation 14% 0.90 40% B 19% 1.25 30% The market index has a standard deviation of 22% and the risk-free rate is 8%. (a) What are the standard deviations of stocks A and B? (10 points) (b) What is the covariance between stock A and stock B? (10 points) (c) Compute the standard deviation of a portfolio that has 50% weight in both A and B. The following table provides the single-index model estimates for two stocks. Stock Expected Return Beta Firm-Specific Standard Deviation 14% 0.90 40% B 19% 1.25 30% The market index has a standard deviation of 22% and the risk-free rate is 8%. (a) What are the standard deviations of stocks A and B? (10 points) (b) What is the covariance between stock A and stock B? (10 points) (c) Compute the standard deviation of a portfolio that has 50% weight in both A and B

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