Suppose that the index model for stocks a and b is, Financial Management

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Suppose that the index model for stocks a and b is

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

RA = 3.6% + 1.20RM + eA RB = –1.6% + 1.5RM + eB σM = 16%; R-squareA = 0.25; 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 standard deviation of the portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places. Omit the "%" sign in your response.)

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