Q#2: [10 POINTS] Index Model: Consider the two (excess return) index model regression results for A and B : RA=1%+1.2RM R-square =.576 Residual standard deviation =10.3% RB=2%+0.8RM R-square =.436 Residual standard deviation =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. If if were constant at 6% and the regression had been run using total rather than excess returns, what would have been the regression intercept for stock A ? Q#2: [10 POINTS] Index Model: Consider the two (excess return) index model regression results for A and B : RA=1%+1.2RM R-square =.576 Residual standard deviation =10.3% RB=2%+0.8RM R-square =.436 Residual standard deviation =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. If if were constant at 6% and the regression had been run using total rather than excess returns, what would have been the regression intercept for stock A