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5 Problem 18-9 (Algo) Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was

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5 Problem 18-9 (Algo) Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 7%, and the market's average return was 14%. Performance is measured using an index model regression on excess returns. 10 points eBook Print References Index model regression estimates R-square Residual standard deviation, (e) Standard deviation of excess returns Required: Stock A Stock B 1% + 1.2(rm -rf) 2% 0.8(rm -rf) 0.635 0.466 11.3% 22.6% 20.1% 26.9% a. Calculate the following statistics for each stock: (Do not round intermediate calculations. Round your answers to 4 decimal places.) i. Alpha ii. Information ratio iii. Sharpe ratio iv. Treynor measure Stock A Stock B % % b. Which stock is the best choice under the following circumstances? i. This is the only risky asset to be held by the investor. Assessment Tool iFrame ii. This stock will be mixed with the rest of the investor's portfolio, currently composed solely of holdings in the market-index fund. iii. This is one of many stocks that the investor is analyzing to form an actively managed stock portfolio.

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