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

RA = .01 + 1.2RM

R- squared = .576

σ ( e) = 10.3%

RB = - .02 + .8RM

R- squared = .436

σ(e) = 9.1%

a. Which stock has more firm- specific risk?

b. Which has greater market risk?

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

d. Which stock had an average return in excess of that predicted by the CAPM?

e. If rf were constant at 6 percent and the regression had been run using total rather than excess returns, what would have been the regression intercept for stock A?