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

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

RA = 2.5% + 0.95RM + eA
RB = −1.8% + 1.10RM + eB
σM = 27%; R-squareA = 0.23; R-squareB = 0.11

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.

What is the standard deviation of portfolio Q?

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

What is the covariance between the portfolio and the market index?

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