Question: Question 7 (10 points). Consider the following two regression models. Ra=2+1.3 Rm Rb 1.5+0.9 Rm Residual standard deviation (residual risk) is 12%; R-Squared is

Question 7 (10 points). Consider the following two regression models. Ra=2+1.3 Rm

Question 7 (10 points). Consider the following two regression models. Ra=2+1.3 Rm Rb 1.5+0.9 Rm Residual standard deviation (residual risk) is 12%; R-Squared is 0.6 Residual standard deviation (residual risk) is 10%; R-Squared is 0.8 The standard deviation of the market portfolio is 21 %. 7a. If you expect the market return to be 10%, calculate the expected returns for the two stocks (a, and b). 7b. if the market return is zero percent, what would be the returns for the two stocks (a, and b). 7c. Explain for which stock the market movements explain a greater fraction of variation in return.

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