Question: Consider the two (excess return) index model regression results for A and B : R A = 2% + 1.8 R M R -square =

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

R_A = 2% + 1.8R_M

R-square = 0.628

Residual standard deviation = 12.2%

R_B = 1.2% + 1.2R_M

R-square = 0.586

Residual standard deviation = 10.5%

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 r_f were constant at 5.6% 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 places.)

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