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What is the standard deviation of portfolio q

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Reference no: EM132466328

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

RA = 2.6% + 0.90RM + eA

RB = -2.0% + 1.20RM + eB

σM = 26%; R-squareA = 0.21; R-squareB = 0.12

Assume you make 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.

Required:

Question 1: What is the standard deviation of portfolio Q?

Question 2: What is the beta of portfolio Q? 

Question 3: What is the "firm-specific" risk of portfolio Q?

Question 4: What is the covariance between the portfolio and the market index?

Reference no: EM132466328

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