Consider the two (excess return) index model regression results for A and B:

Stock A

R_A = -1 % + 1.1 R_M

R -square = 0.640

Residual standard deviation = 8.9%

Stock B

R_B = 3 % + 1.4 R _M

R square= 0.764

Residual standard deviation= 7.3%

1. Which stock has more firm-specific risk and why?

2. Which has greater market risk and why?

3. For which stock does market movement explain a greater fraction of return variability and why?

4. If r_f were constant at 4% and the regression had been run using total rather than excess returns, what would have been the regression intercept for stock A?