Break down the variance of each stock to the systematic and firm specific components Suppose that the index model for stocks A and B is estimated from excess returns with the following results RA 3 1 7RM eA RB 22 1 1 2RM eB M 20 R squareA 5 20 R squareB 12 ...

The systematic risk for A is The firmspecific risk o ...

Break down the variance of each stock to the systematic and firm-specific components. Suppose that the index

Question:

Break down the variance of each stock to the systematic and firm-specific components.
Suppose that the index model for A and B is estimated from excess returns with the following results:
RA = 3% 1 .7RM + eA
RB = 22% 1 1.2RM + eB
σM = 20%; R-squareA 5 .20; R-squareB = .12

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing...