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Consider the two (excess return) index model regression results for A and B: RA = –1.5%...

Consider the two (excess return) index model regression results for A and B:

RA = –1.5% + 1.3RM

R-square = 0.658

Residual standard deviation = 13.2%

RB = 0.8% + 0.95RM

R-square = 0.596

Residual standard deviation = 11.8%

a. Which stock has more firm-specific risk?

  • Stock A

  • Stock B



b. Which stock has greater market risk?

  • Stock A

  • Stock B



c. For which stock does market movement has a greater fraction of return variability?

  • Stock A

  • Stock B



d. If rf were constant at 6.5% and the regression had been run using total rather than excess returns, what would have been the regression intercept for stock A? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

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