1. Given the information of stock X, the beta of stock B is 1.15, standard deviation of

error term of stock Bs return is 9 %. The expected return of S&P 500 (market index)

is 12 %, and standard deviation of S&P 500 is 18%. (Chapter 8)

a. Please write down the market model of stock B

b. Please estimate the expected return of stock B by using market model if alpha is 2%

c. Please estimate stock Bs risk by using market model