Consider the two (excess return) index model regression results for A and B: R_A = 0.8% + 1R_M R-square = 0.588 Residual standard deviation = 10.8% R_B = 1.2% + 0.7R_M R-square = 0.452 Residual standard deviation = 9% a. Which stock has more firm-specific risk?

• Stock A

• Stock B

b. Which stock has greater market risk?

• Stock A

• Stock B

c. For which stock does market movement has a greater fraction of return variability?

• Stock A

• Stock B

d. If r_f were constant at 4.5% and the regression had been run using total rather than excess returns, what would have been the regression intercept for stock A? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

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