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Business, 02.04.2020 17:28 dondre54

Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 3% + 0.7RM + eA RB = –2% + 1.2RM + eB ?M = 20%; R-squareA = 0.20; R-squareB = 0.12 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 P is composed of 60% Stock A and 40% Stock B.

1. What is the standard deviation of portfolio Q?
2. What is the beta of portfolio Q?
3. What is the "firm-specific" risk of
4. What is the covariance between the portfolio and the market index? portfolio Q?

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