Problem $18-9($Algo$)$

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

market's average return was $14\%.$ Performance is measured using an index model regression on excess returns.

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Required:

a$.$ Calculate the following statistics for each stock: $($Do not round intermediate calculations. Round your answers to $4$ decimal

places.$)$

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

i$.$ This is the only risky asset to be held by the investor.

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ii$.$ This stock will be mixed with the rest of the investor's portfolio, currently composed solely of holdings in the market$-$Index fund.

iii. This is one of many stocks that the investor is analyzing to form an actively managed stock portfolio.