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 14 Performance is measured using an index model regression on excess returns Stock A Stock B Index model regression estimates 1 1 2( r M r f ) 2 0 8( r M r f ) R square 0 635 0 466 Residual standard deviation, ( e ) 11 3 20 1 Standard deviation of excess returns 22 6 26 9 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

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Question: 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

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 14%. Performance is measured using an index model regression on excess returns.

	Stock A	Stock B
Index model regression estimates	1% + 1.2(r_M r_f)	2% + 0.8(r_M r_f)
R-square	0.635	0.466
Residual standard deviation, (e)	11.3%	20.1%
Standard deviation of excess returns	22.6%	26.9%

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

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

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

B. The risk-free rate over the period was 7%, and the markets

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