1. The index model has been estimated for stocks A and B with the following results: R_A= 0.03 + 0.85R_M+ e_A R_B= 0.01 + 1.55R_M+ e_B

The standard deviation of the market index is 27%; the residual standard deviation of the error terms for stock A is 22%;the residual

standard deviation of the error termsfor stock B is 30%. What is the covariance between the returns on stocks A and B?

2.Using the data from problem 1, what is your best estimate of the total variance of the excess returns on stock B?

3.Usingthe data from problem1,what is your best estimate of the R-Squared in theregressionofstock Bon themarketindexM?