Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 7%, and the markets average return was 15%. Performance is measured using an index model regression on excess returns.

Stock A Stock B Index model regression estimates 1% + 1.2(rM rf) 2% + 0.8(rM rf) R-square 0.641 0.469 Residual standard deviation, (e) 11.4% 20.2% Standard deviation of excess returns 22.7% 27.1%

a. Calculate the following statistics for each stock: (Round your answers to 4 decimal places.)

b. Which stock is the best choice under the following circumstances?