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What is the firm-specific risk of portfolio

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Reference no: EM131797426

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

RA = 2.8% + 1.00RM + eA

RB = -1.0% + 1.30RM + eB

sM = 18%; R-squareA = 0.27; R-squareB = 0.13

Assume you create a portfolio Q, with investment proportions of 0.40 in a risky portfolio P, 0.35 in the market index, and 0.25 in T-bill. Portfolio P is composed of 70% Stock A and 30% Stock B.

What is the standard deviation of portfolio Q?

What is the "firm-specific" risk of portfolio Q?

Reference no: EM131797426

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