Assume single-index regressions on mutual funds A and B, based on the last 60 monthly observations, reveal that RA - Rf = 0.5+0.8*(Rm-Rf), while RB - Rf = -0.4+1.3*(Rm-Rf) and measures of fit suggest that the single-index regressions provide reasonable estimates of the funds behaviour in the respective period. The next three statements interpret the regressions outputs as provided above

Statement A: Fund A appears to deliver a positive alpha, exhibiting superior stock-picking skills relatively to its defensive exposure to the market, but the regression output should be examined more closely to check for alphas significance

Statement B: Fund B appears to deliver a negative alpha, exhibiting poor stock-picking skills relatively to its aggressive exposure to the market, but the regression output should be examined more closely to check for alphas significance

Statement C: Assuming (i) the single-index regression outputs provide a reasonable estimate of the monthly behaviour of the two stocks in the near future and (ii) the risk-free rate is fixed at 2% (Rf=2%), the return on stock B is expected to exceed the return on stock A (RB > RA) in the months where Rm>3.5, while the return on stock A is expected to exceed the return on stock B in the months where Rm<3.5

Which statements are correct?

1. A, B, and C

2. A and C

3. All statements are wrong

4. B and C

5. A and B

(In computational problems, show the basic equation(s) you used to solve the problem. In verbal problems, briefly explain your choice and why you dismissed the other answers)