Business, 05.03.2020 11:56, itsyourgirll

Consider the two (excess return) index model regression results for A and B:

RA = –1.1% + 1.7RM

R-square = 0.682

Residual standard deviation = 14%

RB = 0.4% + 1.4RM

R-square = 0.576

Residual standard deviation = 12.5%

a. Which stock has more firm-specific risk?

Stock A

Stock B

b. Which stock has greater market risk?

Stock A

Stock B

c. For which stock does market movement has a greater fraction of return variability?

Stock A

Stock B

d. If rf were constant at 8% and the regression had been run using total rather than excess returns, what would have been the regression intercept for stock A? (Negative value should be indicated by a minus sign.

Answers: 3

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Consider the two (excess return) index model regression results for A and B:

RA = –1.1%...