EXERCISES: You obtained the following results when vou estimated the security characteristic lines for stocks A and B: Stosk A: (RA-Rr) ax+Pa(RM-Rr) + A Stock B: (Rg-Rr) ag + Bs(RM-Rr)+ e Where RA and Rg are returns on stock A and B, Ru is return on the market, Ry is the risk-free rate that has been constant throughout the sample period, and e, and eg are the zero-mean error terms. Stock B Stock A Average return Return standard deviation Alpha Beta 13% 19% 30 % 40% 0 0.8 1.4 R square 0.49 What should the risk-free rate and the average market return have been? (5 %; 15 %) a) What is stock B's R square? (0.2844) b) Compute stock B's M2 measure. (-4.67 % ) c) d) Compute stock A's sharpe ratio. (35%) utor e) Compute stock B's Treynor Index. (10%) f) What is the correlation coefficient between stock A and B? (0.3733) g) Assuming that the estimates are true descriptions of stock A and B's return generating processes, calculate the smallest standard deviation one can get by forming a portfolio of stock A and B. (27.8%) EXERCISES: You obtained the following results when vou estimated the security characteristic lines for stocks A and B: Stosk A: (RA-Rr) ax+Pa(RM-Rr) + A Stock B: (Rg-Rr) ag + Bs(RM-Rr)+ e Where RA and Rg are returns on stock A and B, Ru is return on the market, Ry is the risk-free rate that has been constant throughout the sample period, and e, and eg are the zero-mean error terms. Stock B Stock A Average return Return standard deviation Alpha Beta 13% 19% 30 % 40% 0 0.8 1.4 R square 0.49 What should the risk-free rate and the average market return have been? (5 %; 15 %) a) What is stock B's R square? (0.2844) b) Compute stock B's M2 measure. (-4.67 % ) c) d) Compute stock A's sharpe ratio. (35%) utor e) Compute stock B's Treynor Index. (10%) f) What is the correlation coefficient between stock A and B? (0.3733) g) Assuming that the estimates are true descriptions of stock A and B's return generating processes, calculate the smallest standard deviation one can get by forming a portfolio of stock A and B. (27.8%)