What is the covariance between the portfolio and the market

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Reference no: EM132008599

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

R_A = 2% + 0.40R_M + eA
R_B = -1.8% + 0.9R_M + eB
s_M = 15%; R-square_A = 0.30; R-square_B = 0.22

Assume you create portfolio P with investment proportions of 0.70 in A and 0.30 in B.

1. What is the standard deviation of the portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Standard deviation %

2. What is the beta of your portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.)

Portfolio beta

3. What is the firm-specific variance of your portfolio? (Do not round your intermediate calculations. Round your answer to 4 decimal places.)

Firm-specific

4. 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

Reference no: EM132008599

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