Consider the two (excess return) index model regression results for A and B: RA
ID: 3379774 • Letter: C
Question
Consider the two (excess return) index model regression results for A and B:
RA = –1.2% + 1.6RM
R-square = 0.676
Residual standard deviation = 13.8%
RB = 0.5% + 1.3RM
R-square = 0.574
Residual standard deviation = 12.4% 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 7% 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. Round your answer to 2 decimal place. Omit the "%" sign in your response.) Intercept %
Explanation / Answer
Consider the two (excess return) index model regression results for A and B: RA