Assume you gathered the historical weekly excess returns for IBM and for a S&P 500 portfolio using data over the last 2 years and plotted them as shown in the scatter plot below. Assume the trend line shown on the plot is from a CAPM motivated regression of the IBM excess returns on the market excess returns. Assume the R-square from this regression is 0.45. Question: Which of the statements below best describes the R-square value would mean for this regression? (Hint: See the questions and answers on slide # 23 of the "Regression Review" lecture.) Excess returns on IBM 0.10 0.00 -0.10 -0.20 O D -0.2 O CAPM regression for IBM O 0 O C -0.1 00 O 0 O 1%8 8 0.0 O Excess returns on MARKET 0 0 08 0 0.1 O O An R-square of .45 would mean that 45% of IBM's total risk is coming from the market. O An R-square of .45 would mean that 45% of IBM's total risk is coming from firm-specific risk. O An R-square of .45 would mean that 65% of IBM's total risk is coming from the market.

Assume you gathered the historical weekly excess returns for IBM and for a S\&P 500 portfolio using data over the last 2 years and plotted them as shown in the scatter plot below. Assume the trend line shown on the plot is from a CAPM motivated regression of the IBM excess returns on the market excess returns. Assume the R-square from this regression is 0.45 . Question: Which of the statements below best describes the R-square value would mean for this regression? (Hint: See the questions and answers on slide \#23 of the "Regression Review" lecture.) An R-square of .45 would mean that 45% of IBM's total risk is coming from the market. An R-square of 45 would mean that 45% of IBM's total risk is coming from firm-specific risk. An R-square of . 45 would mean that 65% of IBM's total risk is coming from the market