What is the firm-specific variance of your portfolio

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Reference no: EM132008510

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

RA = 1.6% + 0.70RM + eA
RB = -1.8% + 0.9RM + eB
sM = 22%; R-squareA = 0.20; R-squareB = 0.15

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

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

Firm-specific

2.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: EM132008510

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