Final answer:
The question does not provide enough information to calculate the total standard deviations of stocks A and B; it only provides the firm-specific standard deviations, which are 30% and 40% respectively. However, without the market standard deviation or other required information, the total standard deviations considering market risk cannot be calculated.
Step-by-step explanation:
Understanding the Standard Deviation of Stocks
To determine the standard deviations of stocks A and B, it is important to first understand what this measure represents. Standard deviation indicates the amount of variability or volatility from the expected return of a stock. However, the student's question does not provide enough information to calculate the total standard deviation directly since it only gives the firm-specific standard deviation and the beta (which indicates the stock's volatility in relation to the market), not the market standard deviation.
Typically, the total standard deviation of a stock can be calculated if we know the market's standard deviation and the stock's beta, as part of the formula for the capital asset pricing model (CAPM). However, since we only have the firm-specific standard deviation, we are unable to provide the total standard deviation that would include market risk.
If we were measuring only the firm-specific risk, then the firm-specific standard deviations for stock A and B would be 30% and 40% respectively, as mentioned in the question. However, these percentages do not account for market risk which is part of the stock's total risk and is typically reflected in the stock's beta when considering the CAPM model.